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Glencoe Personal Finance
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Chapter
Personal Financial Planning
3
Why is it important to learn now how to
plan for your financial future?
Glencoe Personal Finance
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It is important to begin planning now!
Financial security can only be assured if you plan
for it
The earlier you plan, the more likely you are to
reach your goals
Glencoe Personal Finance
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Chapter
Personal Financial Planning
3
personal financial
planning
goals
values
liquidity
service
good
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consumer
interest
time value of money
principle
future value
annuity
present value
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Chapter
Personal Financial Planning
3
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
3
Personal Financial Planning
Section 1 Financial Decisions and Goals
Define personal financial planning.
List the six steps of financial planning.
Identify factors that affect personal financial decisions.
Glencoe Personal Finance
Copyright © by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter
3
Personal Financial Planning
Section 1 Financial Decisions and Goals
Personal Financial Decisions
Personal
Financial Planning
Your Goals
personal financial planning
arranging to spend, save, and invest money to live
comfortably, have financial security, and achieve goals
goals
the things one wants to accomplish
Glencoe Personal Finance
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Chapter
3
Personal Financial Planning
Section 1 Financial Decisions and Goals
Personal Financial Decisions
Benefits of Planning
Increased
effectiveness
in managing
financial
resources
Glencoe Personal Finance
Debt
avoidance
and reduced
dependence
on others
Improved
personal
relationships
A sense of
freedom from
financial
worries
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Chapter
3
Personal Financial Planning
Section 1 Financial Decisions and Goals
Personal Financial Decisions: Step 1
Determine Your Current Financial Situation
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Savings
Monthly Income
Monthly Expenses
Debts
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Chapter
3
Personal Financial Planning
Section 1 Financial Decisions and Goals
Personal Financial Decisions: Step 2
Develop Your Financial Goals
Think about your
financial goals
Do your personal
values affect your
financial decisions?
What are
your needs?
What are
your wants?
values
the beliefs and principles you consider
important, correct, and desirable
Glencoe Personal Finance
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Chapter
3
Personal Financial Planning
Section 1 Financial Decisions and Goals
Personal Financial Decisions: Step 3
Identify Alternative Courses of Action
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Continue the same
course of action
Expand the current
situation
Change the current
situation
Take a new course
of action
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Chapter
3
Personal Financial Planning
Section 1 Financial Decisions and Goals
Personal Financial Decisions: Step 4
Evaluate Your Alternatives
Sources of Financial
Information
The Internet
Financial Institutions
Media Sources
Financial Specialists
Consequences of Choice
(opportunity cost)
Evaluating
Risks
Inflation Risk
SEE PAGE 66
Interest Rate Risk
Income Risk
Personal Risk
Liquidity Risk
liquidity
the ability to easily convert financial assets into cash without loss in value
Glencoe Personal Finance
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Personal Financial Decisions: Step 5 and Step 6
STEP 5
– Create and Use Your Financial Plan
STEP 6
– Review and Revise Your Plan
Glencoe Personal Finance
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Chapter
3
Personal Financial Planning
Section 1 Financial Decisions and Goals
Developing Personal Financial Goals
Short-Term
Goals
Intermediate
Goals
Long-Term
Goals
One year or
less
Two to five
years
More than five
years
Glencoe Personal Finance
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Chapter
3
Personal Financial Planning
Section 1 Financial Decisions and Goals
Developing Personal Financial Goals
Service
Good
service
a task that a person or machine performs for you
good
physical item that is produced and can be weighed or measured
Glencoe Personal Finance
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Chapter
3
Personal Financial Planning
Section 1 Financial Decisions and Goals
Developing Personal Financial Goals
Tips for Setting Your Financial Goals
Glencoe Personal Finance
Be realistic
Be specific
Have a clear
time frame
Know what type of
action to take
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Chapter
3
Personal Financial Planning
Section 1 Financial Decisions and Goals
Influences on Personal Financial Planning
Life
Situations
See Pg. 70
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Personal
Situations
Values
Economic
Factors
See next slide
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Chapter
3
Personal Financial Planning
Section 1 Financial Decisions and Goals
Influences on Personal Financial Planning
Economic Factors: See Page 72
Market
Forces
Supply & Demand
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Financial
Institutions
Banks, Credit Unions,
Savings & Loan, Insurance
Companies, Investment
Companies
Federal Reserve
Global
Influences
Global Marketplace,
Competition between
nations affects the economy
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Chapter
3
Personal Financial Planning
Section 1 Financial Decisions and Goals
Influences on Personal Financial Planning
Economic Conditions: Page 73
Consumer
Prices
Consumer
Spending
Interest
Rates
consumer
a person who purchases and uses goods or services
interest
the price that is paid for the use of another’s money, represents the
Cost of money…increased savings/investments = > money supply,
More money borrowed = demand for money is > and interest rates
go up
Glencoe Personal Finance
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Chapter
3
Personal Financial Planning
Section 1 Financial Decisions and Goals
Often people with conflicting financial values and practices
experience challenges in their business or personal
relationships. How could such problems be minimized or
prevented using what you have learned in this chapter?
Answers will vary. Sample answer: Spouses who disagree
about how much to spend on certain goods or activities may
have frequent arguments. To reduce arguments, they need to
communicate with each other before making decisions.
Glencoe Personal Finance
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Chapter
3
Personal Financial Planning
Section 2 Opportunity Costs and Strategies
Explain the opportunity costs associated with personal
financial decisions.
Understand the time value of money.
Identify eight strategies for achieving financial goals at
different stages of life.
Glencoe Personal Finance
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What is an Opportunity Cost? Pg. 76
What is given up when making one choice instead
of another
Two types of Opportunity Costs
– Personal
– Financial
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Chapter
3
Personal Financial Planning
Section 2 Opportunity Costs and Strategies
Personal Opportunity Cost: pg. 76
Personal Resources Require Management
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Health
Knowledge
Skills
Time
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Chapter
3
Personal Financial Planning
Section 2 Opportunity Costs and Strategies
Financial Opportunity Cost pg. 76
To help make choices, consider
the time value of money.
time value of money
the increase of an amount of money due to earned
interest or dividends (money could be worth more later
by earning interest or dividends…your current needs
determine if trading off interest earnings is worthwhile)
Glencoe Personal Finance
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Chapter
3
Personal Financial Planning
Section 2 Opportunity Costs and Strategies
Financial Opportunity Cost pg. 77
Calculating Interest
Principal x Annual Interest Rate = Interest
principal
the original amount of money on deposit
SEE “GO FIGURE”, page 77
Glencoe Personal Finance
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Chapter
3
Personal Financial Planning
Section 2 Opportunity Costs and Strategies
Financial Opportunity Cost pg. 77
Calculating Future Value
Multiply the principal by the annual interest rate
and then add that interest amount to the principal.
future value
the amount an original deposit will be worth in
the future based on earning a specific interest
rate over a specific period of time
SEE “GO FIGURE” pg. 78.
Glencoe Personal Finance
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Chapter
3
Personal Financial Planning
Section 2 Opportunity Costs and Strategies
Financial Opportunity Cost
What is an annuity?
annuity
series of equal regular deposits
SEE “FUTURE AND PRESENT VALUE
TABLE”, pg. 79
Glencoe Personal Finance
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Chapter
3
Personal Financial Planning
Section 2 Opportunity Costs and Strategies
Financial Opportunity Cost
What is present value?
present value
the amount of money one would need to
deposit now in order to have a desired
amount in the future
SEE “FUTURE AND PRESENT VALUE
TABLE, pg. 79
Glencoe Personal Finance
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Chapter
3
Personal Financial Planning
Section 2 Opportunity Costs and Strategies
Achieving Your Financial Goals
Strategies
1
5
Obtain financial records.
2
Plan how you will spend your
money.
3
Borrow wisely.
6
Invest to increase current
income and for long-term growth
7
Spend wisely.
4
Manage risk.
8
Save on a regular basis.
Glencoe Personal Finance
Plan for retirement.
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Chapter
3
Personal Financial Planning
Section 2 Opportunity Costs and Strategies
HOMEWORK Question #2, pg. 85: DEBATE New and improved
versions of electronic devices become available often. Detail
arguments for and against upgrading each time a new device
becomes available.
For: It is fun to have the latest gadgets; the most current technology
can be beneficial for organization and efficiency, and necessary for
education/career goals.
Against: Upgrade is not necessary if it is a want and not a need. If the
device works, it is wasteful to replace it. Replaced devices may end up
in a landfill.
Glencoe Personal Finance
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Chapter
3
Personal Financial Planning
Section 2 Opportunity Costs and Strategies
HOMEWORK Question #4, pg. 85: PREDICT What factors might play a
part in the revision of your financial plan as you get older?
Health
Relationships– marriage, additional family members,
widow/widower—can create financial changes
Education—many people choose to continue their education later in
life
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Chapter
Personal Financial Planning
3
Opportunity Cost
An opportunity
cost is what you
give up to get
something else.
Source: www.collegeboard.com
Glencoe Personal Finance
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Chapter
Personal Financial Planning
3
Glencoe Personal Finance
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Chapter
Personal Financial Planning
3
Glencoe Personal Finance
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Glencoe Personal Finance
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