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CHAPTER 1, PERSONAL FINANCE BASICS AND THE TIME VALUE OF MONEY, LO 1-1, LO…
CHAPTER 1
PERSONAL FINANCE BASICS AND THE TIME VALUE OF MONEY
OPPORTUNITY COSTS AND THE TIME VALUE OF MONEY
Time Value of Money
Method calculating
formula calculation
websites and apps
spreadsheet software
time value of money tables
financial calculator
Computing simple interest
amount in savings x annual interest rate x time period = interest amount
Interest calculations
principal ( the amount of savings )
interest rate ( annual )
time period ( length of time money is on deposit )
Opportunity Cost
Financial Opportunity Cost ( current needs, future uncertainty and current interest rate )
Personal Opportunity Cost ( health, ability, knowledge and time )
DEVELOP PERSONAL FINANCIAL GOALS
Types of Financial Goals
Timing of goals
Intermediate
Long-term
Short-term
Goals for different financial needs
Consumable-product goals
Durable-product goals
Intangible-purchase goals
Goal-Setting Guidelines
Goals should be S-M-A-R-T
Specific
Measurable
Action-oriented
Realistic
Time-based
PERSONAL FINANCIAL PLANNING
Develop your financial growth
Determine current financial situation
Evaluate alternative
consider
personal values
economic factors
life situation
access
risk
interest rate risk
income risk
inflation risk
personal risk
liquidity risk
time value of money ( opportunity cost )
Identity alternative courses of action
Create and implement your financial action plan
Review and revise the financial plan
ACHIEVING FINANCIAL SERVICES
Developing a flexible finance plan text
Components of financial planning
controlling your financial future ( retirement and estate planning )
insuring your resources ( managing risks )
planning your personal finances ( obtaining, planning )
making your purchasing decisions ( spending )
managing your personal finances ( saving, borrowing )
investing your financial resources ( investing )
Implementing your financial plan
CHANGING ECONOMIC CONDITIONS AND FINANCIAL DECISIONS
Consumer prices
Consumer not able to purchase goods and service when consumer prices exceed income
Consumer spending
Create more jobs and higher wages
Interest rates
make saving and investing more attractive also may discourage borrowing
Money supply
reduce job opportunities (when higher saving)
Unemployment
reduces consumer spending and future opportunities
Housing starts
creates job, higher wages and overall economic expansion
Gross domestic product (GDP)
opportunities for increased personal wealth
Trade balance
result in price changes for foreign goods
Dow Jones Average, S&P 500, other stock market indexes
provide indication of the general movement of stock prices
Select a Path to Financial Security
Avoid excuses
Set mission
Do something
Rate current situation
LO 1-1
LO 1-2
LO 1-3
LO 1-5
LO 1-4
STEP 1
STEP 2
STEP 3
STEP 4
STEP 5
STEP 6