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CHAPTER 1 PERSONAL FINANCE BASICS AND THE TIME VALUE OF MONEY - Coggle…
CHAPTER 1
PERSONAL FINANCE BASICS AND
THE TIME VALUE OF MONEY
THE FINANCIAL
PLANNING PROCESS
Determine current
Financial situation
~Evaluate income, saving,
living expenses and debts
Develop your
Financial goals
~Identify feelings about
money and the reasons for
those feelings
Identify alternative
Course of action
Continue the same course of action
Expand the current situation
Change the current situation
•Assess - risk, time value of money
•Consider - life situation
•Evaluate alternatives
Consequences of choice
Evaluating risk
Financial planning
information sources
Create and implement your
Financial action plan
Develop an action plan
That identifies ways
To achieve financial goal
Review and revise
The financial plan
A complete review should be done
At least once a year
Influences on Personal Financial Planning
Life Situation & Personal Values
• Adult life cycle (marriage, job, kids, retirement)
• Personal values = what you believe is important
Financial System & Economy
• Money Flow: From savers → borrowers via banks/markets
• Economics: Creation & distribution of wealth
• Key Players:
• Federal Reserve → controls money supply, interest rates
Global Influences
• Trade balance: Exports vs imports
• Foreign investment affects national currency
• Global competition affects prices & job markets
Economic Factors
• Consumer Prices (Inflation):
• Affects buying power
• Rule of 72: 72 ÷ rate = years to double price/savings
• Consumer Spending:
• Drives job creation & income
• Interest Rates:
• High = borrowing expensive, saving attractive
• Money Supply:
• More saving = lower rates but less spending
• Unemployment:
• High = less spending, job challenges
Other Economic Indicators
• Housing Starts: More houses → more jobs
• GDP: Total economic output = jobs + wealth
• Trade Balance: Deficit can raise import prices
• Stock Indexes (Dow Jones, S&P 500): Reflect market trend
Personal Financial Goals
• Types:
• Short-term: < 1 year
• Intermediate: 1–5 years
• Long-term: > 5 years
• Needs-Based:
• Consumable (food, gas)
• Durable (car, appliances)m
• Intangible (education, vacation)
S.M.A.R.T. Goals
• Specific
• Measurable
• Action-oriented
• Realistic
• Time-based
Steps Toward Financial Security
• Take action (save, reduce debt)
• Avoid excuses
• Know your habits (spender vs saver)
• Create a mission statement