CHAPTER ONE PERSONAL FINANCIAL PLANNING. Chapter 1 Objectives… How to create a financial plan How to develop your personal financial goals The opportunity.

Chapter One

Personal Financial Planning

Chapter 1 Objectives…

• How to create a financial plan• How to develop your personal financial goals• The opportunity costs associated with each of

their financial decisions

• The strategies for achieving your financial goals• How to evaluate the economic factors that will

affect your ability to save and invest money

What is Personal Financial Planning?

Spending, saving and investing $$ so you have the life you want!

In order to financial plan, you need a GOAL (things you want to accomplish)

Ex: college, buying a car, saving for an iPod, etc.

Benefits of Financial Planning

• You have more MONEY!

• You have less chance of going into debt.

• You can help others (partner, children, etc)

http://consumerist.com/tag/clips

6 Steps of Financial Planning

Look at your current financial situation Develop your goals (values) Make a course of action (change) Evaluate alternatives (info available) Create your financial plan (write it down) Review and revise consistently

Timing of Goals

Short term: one year or less Intermediate: 2-5 years Long term: more than 5 years

Influences on Personal Financial Planning

Economics: study of making, distributing and using goods/services.

The economy: many things affect the economy (global, war, market forces, etc) How well you can save may depend on these influences…lets discuss. :) 1. Market forces 2. Financial Institutions 3. Global Conditions 4. Overall Economic Conditions

Influence 1: Market Forces

What is supply & demand? Supply: amount of goods available Demand: amount people are willing to buy.

**If costs of goods & services rise, this will affect your ability to save and invest!

Influence 2: What is a Financial Institution?

Banks, credit unions, savings & loan associates, insurance companies.

The Federal Reserve System: Our countries central banking organization Known as The Fed. Determines interest rates; if rates go up, this will affect

how much you can save & invest!

Influence 3: Global

• How well are we trading with other countries? How well are we producing products here in the U.S.?

• If the U.S. buys more goods than it sells, more $ leaves the U.S. then enters thus leaving less $$ for saving and investing (and interest rates may rise).

Influence 4: Economic Conditions

Inflation Consumer spending Interest rates

Calculating Interest

• Time Value of Money: The increase of an amount of money as a result of interest or dividends earned.

•In order to calculate, you must know the principal (the amount you deposited), the interest rate, and how long you will leave your $ in the bank.

•Always shop around for the highest interest rate!

Annual Interest

• Formula: Principal x Annual Interest = Interest earned for one year.

• So, let’s say you deposit $1,000 in a savings account. The bank is paying you 5% annual interest. Here’s what to do: • $1,000 x 5% = $50.00

• (you will earn $50.00 in interest that year!) yippeee!

Let’s Review!

• What are the three types of goals (timing)….• What are the three major benefits of financial

planning?• Tell me at least three ways our state of economy

can affect our ability to save and invest....

Great job!