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PERSONAL FINANCIAL
PLANNING
MRS. GRAY
PERSONAL FINANCIAL PLANNING
Why is it important to have a plan
before making a financial decision?
WHAT IS PERSONAL FINANCE?
• Personal Financial Planning – Arranging to spend, save
and invest money to live comfortable, have financial
security and achieve goals.
• Goals – Things that you want to accomplish
• Examples:
• Getting a college education
• Buying a car
• Starting a Business
Planning for your personal finances is important because it
will help you to reach your goals, no matter what they are.
BENEFITS OF FINANCIAL PLANNING
• Increase effectiveness in obtaining, using and
protecting your financial resources throughout your life
• Increased control of your finances by avoiding too
much debt, bankruptcy and dependence on others
• Improved personal relationship gained from wellplanned and well-communicated financial decisions
• A sense of freedom from financial worries gained from
looking to the future, anticipating expenses and
achieving personal economic goals.
What is your current financial situation?
Make a list of items that relate to your finances:
• Savings
SIX STEPS TO
• Monthly Income (job
FINANCIAL
earnings, allowance, gifts
PLANNING
and interest on bank
accounts
STEP 1
DETERMINE YOUR
• Monthly Expenses (Money
CURRENT
you spend)
FINANCIAL
• Debts (Money you owe to
SITUATION
others
When you have determined
your financial situation, you will
be able to start planning.
ASK YOURSELF 
SIX STEPS TO
FINANCIAL
PLANNING
STEP 2
DEVELOP YOUR
FINANCIAL
GOALS
• Is it more important to spend
your money now or to save
for the future?
• Would you rather get a job
right after high school or
continue your education?
• Will your chosen career
require additional training or
education in the future?
• Do your personal values
affect your financial
decisions?
Values – Beliefs and principles you consider important,
correct and desirable.
People value different things.
NEEDS VS. WANTS
NEEDS
Something you must
have to survive
 Food
 Shelter
 Clothing
WANTS
Something you desire or
would like to have or do
 _________________
 _________________
 _________________
Only you can decide what specific goals to pursue.
It is impossible to make a good decision unless you
know your options
SIX STEPS TO
FINANCIAL
PLANNING
STEP 3
IDENTIFY
ALTERNATIVE
COURSE OF
ACTION
Suppose that you are saving $500
a month. You have options:
 Continue the same course of
action. (Do not change)
 Expand the current situation.
(Increase savings to $600)
 Change the current situation.
(Invest in stocks instead of
money going into savings
account)
 Take a new course of action.
(Use $500 to pay off debts)
Use the many sources of financial
information that are available:
SIX STEPS TO
FINANCIAL
PLANNING
STEP 4
EVALUATE
YOUR
ALTERNATIVE
Financial Specialists
 Accountants
 Bankers
 Financial Planners
 Insurance Agents
 Tax Attorneys
 Tax Preparers
Technology
 Computer Software
 Internet
The Media
SIX STEPS TO
FINANCIAL
PLANNING
STEP 4
EVALUATE
YOUR
ALTERNATIVE
 Books
 Magazines
 Newspapers
 Radio
 Television
Financial Institutions
 Banks
 Credit Unions
 Insurance and Investment
Companies
Education
 High School Classes
 College Courses
 Seminars
Consider the consequences and risks
of each decision you make.
SIX STEPS TO
FINANCIAL
PLANNING
STEP 4
EVALUATE
ALTERNATIVE
COURSES OF
ACTION
Opportunity Costs:
It is what is given up when
making a choice instead of
another option.
Choosing involves more
than knowing what you
might give up.
It also involves knowing
what you would gain.
Example – The opportunity cost of going to college could be
the benefit of gaining a high paying full time job but losing out
on a good job you had in high school. You will also have to pay
for college.
Evaluating Risks – When you make a financial decision, you
also accept financial risks.
OPPORTUNITY COSTS
& E V A L UA TIN G R IS K S
TYPES OF FINANCIAL RISKS
Inflation Risk
Liquidity
Risk
Personal
Risk
Interest
Rate Risk
Income
Risk
ECONOMIC CONDITIONS &
FINANCIAL PLANNING
• How can the ECONOMY affect your personal
financial planning or money management?
• The House of Representatives just passed a bill to cut
5 billion dollars a year in food assistance to low
income families. How does this affect the financial
planning of the people that currently receive food
assistance?
Economy – The ways in which nations make decisions
to allocate their resources… production and
consumption of goods and services.
SIX STEPS TO
FINANCIAL
PLANNING
STEP 4
EVALUATE
ALTERNATIVE
COURSES OF
ACTION
 Inflation Risk – If you wait to buy a car
until next year, you accept the possibility
that the price many increase.
 Interest Rate Risk – Interest rates go up or
down, you may affect the cost of
borrowing or the profits you earn when
you save or invest.
 Income Risk – You may lose your job due
to unexpected health problems, family
problems, an accident or changes in your
field of work.
 Liquidity Risk – Liquidity is the ability to
easily convert financial assets into cash
without loss in value. Some long-term
investments, such as a house, can be
difficult to convert quickly.
UNDERSTANDING INFLATION
INFLATION RISK
Minimum Wage
Economic
Condition
Consumer
Prices
Consumer
Spending
What it Measures
The value of a
dollar and it
changes with
inflation
Demand for
goods and
services by
individual and
households
How it Influences Financial Planning
• If consumer prices increase faster than
wages, the value of the dollar
decreases (A dollar buys less than it
did before.)
 Consumers tend to buy fewer goods
and services.
 Increased consumer spending usually
creates more jobs and higher wages.
 Reduced consumer spending causes
unemployment to increase.
Cost of money,  Higher interest rates make borrowing
cost of credit
money more expensive and make
when you
saving more attractive.
Interest Rates
borrow and the
return on your
 When interest rates increase, consumer
prices tend to increase.
money when
you save or
Economic
Condition
What it Measures
The dollars available
Money Supply for spending in our
economy
How it Influences Financial Planning
The Federal Reserve Systems (The
FED) sometimes adjusts interest
rates in order to increase or
decrease the amount of money
circulating in the economy.
 If the FED lowers interest rates,
the money supply increases.
 If the FED raises interest rates,
the money supply decreases.
 Low unemployment increases
The number of people
consumer spending.
without jobs who are
Unemployment
willing and able to
 High unemployment reduces
work
consumer spending.
A plan of action is a list of ways to
achieve your financial goals.
SIX STEPS TO
FINANCIAL
PLANNING
STEP 5
CREATE YOUR
FINANCIAL PLAN
OF ACTION
If you want to increase your savings
 Cut back on spending
 Increase your income
o Get a part time job
o Work more hours at your present
job
o Take part of your current income
and invest it
Create a budget
SIX STEPS TO
FINANCIAL
PLANNING
STEP 6
REVIEW AND
REVISE YOUR
PLAN
• As you get older, your
finances and needs will
change.
• Your financial plan will
have to change too.
• Reevaluate and revise
your financial plan every
year.
TYPES OF FINANCIAL GOALS
1. Time Frame to Achieve Goal
2. Type of Financial Need that Inspires your Goals
Time Frame to Achieve Goal
 Short Term Goal = Less than one year
 Intermediate Goal = One to five years
 Long-Term Goals = More than five years
Intangible items (something you cannot hold or touch) are often
overlooked but can be very expensive.
They often are items you consider when weighing the
opportunity cost of something.
PERSONAL AND FINANCIAL
OPPORTUNITY COSTS AND STRATEGIES
Whenever you make a choice, you have to give up, or
trade off, some of your other options. When making
your financial decisions and plans, you must weigh, or
consider both the personal and financial opportunity
costs carefully.
Can you think of examples?
OPPORTUNITY COST
What is an opportunity cost? (in your own words)
Personal Opportunity Costs – Making choices about how you
spend your personal resources
• Health
• Knowledge
• Skills
• Time
OPPORTUNITY COSTS
Do you eat a lot of junk food and avoid exercise?
Do you get enough sleep for an exam the next morning?
Do you study for a test or go a concert you were invited
to?
HAVE YOU HAD ANY
PERSONAL OPPORTUNITY COSTS LATELY?
You cannot do both because people have a limited
amount of time.
FINANCIAL OPPORTUNITY COSTS
Making choices about how you spend your money.
Do you buy new Nike Jordans at the mall for $119.00 plus tax
or do you save your money?
Spending money instead of putting it in your savings account
can mean lost interest earnings.
You cannot do both because most people have a limited
amount of money.
College Spending = BUDGET
FINANCIAL STRATEGIES
Financial planning involves choosing a
career and then learning how to
protect and manage the money you earn.
8 STRATEGIES TO AVOID
COMMON MONEY MISTAKES
1. OBTAIN – Obtain financial resources by working, making
investments and/or owning property.
2. PLAN – The key to achieving your financial goals and financial
security is to plan how you will spend your money.
3. SPEND WISELY – Many people spend more than they can
afford. Other people buy things they can afford but do not
need. Spending less than you earn is the only way to achieve
financial security.
4. SAVE – Long-term financial security starts with a savings plan.
If you save on a regular basis, you will have money to pay your
bills, make major purchases and cope with emergencies.
8 STRATEGIES TO AVOID
COMMON MONEY MISTAKES
5. BORROW WISELY – When you use a credit card or take out
another type of a loan, you are borrowing money. Borrowing
wisely, and only when necessary, will help you achieve your
financial goals and avoid money problems.
6. INVEST – Investing increases current income and helps to achieve
long-term growth.
7. MANAGE RISK – To protect your resources in care you are ever
seriously injured, get sick or die, you will need insurance coverage
to protect you and those who depend on you.
8. PLAN FOR RETIREMENT – When you start to plan for retirement,
consider the age at which you would like to stop working full time.
You should also think about where you will want to live and how
you will spend your time (part time job, doing volunteer work or
enjoying hobbies or sports).
PERSONAL FINANCIAL
PLANNING
MRS. GRAY
DEVELOPING AND USING A
FINANCIAL PLAN
A good personal financial plan includes assessing your
present financial situation, making a list of your current
needs and planning for future needs.
Making your financial plan work
takes time, effort and patience
but you will develop habits that
will give you a lifetime of
satisfaction and security.
MONEY MANAGEMENT
CURRENT EVENT
Google NEWS
• Find a current event using GOOGLE NEWS
• Search using topics we have discussed in class
• “Personal Finance” “Money Management” “Economy 2014”
“ Consumer Spending” “Unemployment” “Interest Rates”
ADD TEENAGER – YOUNG ADULT
YOUR CHOICE!!!
PERSONAL FINANCIALLY
PLANNING EQ
• Why is it important to plan before making a
financial decision?
• Laptop, Cell Phone, Car, House, Education, Career
• As a high schooler, what difference does it make
how I spend my money now?
• Savings, habits, Investments, emergencies, risks vs benefits
• What are your financial goals? Which goals are
needs and which are wants?
• People have a variety of choices when making
purchases. What are the benefits of shopping at
thrift shops, discount stores and stores that sell used
merchandise?
PERSONAL FINANCIAL
PLANNING EQ
• Do you think purchasing money management
software is worth the investment? What is money
management software?
• Which resources might you contact if you want
information about saving for college or assistance
paying for college?
• What strategies can you use to reach your financial
goals?
• What are some you many have in ten years from
now that you do not have today?
PERSONAL FINANCIAL
PLANNING EQ
• How can opportunity costs be evaluated differently
by different people?
• How can a need for one person may be a want for
another?
• What factors might play a part in the revision of your
financial plan as you get older?
• Interpret the phrase “spend money to make money”
and explain how it relates to personal finance.
MONEY MANAGEMENT
DO NOW
 Make a list of five items you would like to buy
 Estimate the cost of each item
 What is the benefit of each item?
How much time do you think it will take to save
the money for each item?
How can this activity be considered financial
planning?