Download An Overview of Personal Finance

An Overview of Personal Finance
• The Importance of Personal Finance
– Slow Growth in Personal Income
• The average annual growth rate in the US is from 2 - 3%
per year.
• This makes saving and investing especially important
– Labor Market Uncertainty
• Job Obsolescence
• Contract Labor
• Corporate Downsizing
An Overview of Personal Finance
• The Importance of Personal Finance
– Rapid Technological Change
• What is a Bank in today’s financial world?
• Critical Thinking and Problem Solving
– Seek out a professional when necessary
• Don’t try doing everything on your own
An Overview of Personal Finance
• The Personal Financial Management Model
– Set a framework of realistic goals
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Financial Goals (independence, early retirement)
Non-financial Goals (employment, education, family)
Short Term (saving the down payment on a new car)
Long Term (Debt Free Living)
An Overview of Personal Finance
• The Personal Financial Management Model
– Personal Planning Areas
• Career Choice (Doctor or ditch digger)
• Cash & Credit Management
– Budgeting
– Debt Relief
An Overview of Personal Finance
• The Personal Financial Management Model
– Personal Planning Areas
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Tax Planning (Goal - legally minimize tax liability)
Effective Buying (Are you a Bargain Hunter?)
Insurance – Planning for risk
Investment Management – Growing Wealth
Retirement and Estate Planning
– Will Social Security exist when you retire?
– Who needs a Will anyway?
An Overview of Personal Finance
• The Personal Financial Management Model
– External Influences
• Government Policy Changes
– Social Security
– Tax Law Changes
• Inheritance Taxes
• Capital Gains Tax (appreciation vs. income)
– Health Insurance
• Government Health Care
An Overview of Personal Finance
• The Personal Financial Management Model
– External Influences
• Economic Conditions
– Business Cycles
• Recessions lead to credit default and declining
investment/savings
• Expansions lead to increased purchasing and investment
• Measured by changes in GDP (Gross Domestic Product)
– Measures of Personal Income
• Disposable Income - After Tax Income
• Discretionary Income – Income after Living Expenses
An Overview of Personal Finance
• The Personal Financial Management Model
– External Influences
• Economic Conditions
– Unemployment Rates
– Inflation
• A Change in the purchasing power of money due
in general to an increase in the supply of currency
• Inflation manifests in the form of rising prices
• CPI – Consumer Price Index
An Overview of Personal Finance
• The Personal Financial Management Model
– External Influences
• Economic Conditions
– Interest Rates - The Cost of Borrowing Money
• Real Rates – Without Inflation (Lower)
• Nominal Rates – Inflation Adjusted (Higher)
– Government Influence
• Fiscal Policy – Taxation & Spending
• Monetary Policy – Changes in the Supply of Money
• Federal Reserve Board
• Who is the Chairman of the Fed?
An Overview of Personal Finance
• Next Class
– Time Value of Money
– Bring Your Calculator