Chapter 1 Personal Finance and Career Planning Personal Finance how people spend save invest and protect insurance their financial resources money Financial Planning steps 3 1 Setting financial goals 2 Create and activating action plan 3 Monitoring evaluating and revising plans Value Principles that guide behavior some people are thrifty tight etc many types of values Attitudes Likes and dislikes Goals Needs End results What you must have Wants What you would like to have Opportunity cost The cost of what is given up Trade offs you NEED to eat you WANT a lobster or steak Risk The possibility of experiencing harm suffering danger or loss personal risk status risk etc more educated people become the more likely people will be to take financial risk Risk aversion Avoidance of risk Risk tolerance Dealing with risk Inflation 2 over the past two years determined by the government through CPI Widely used measure of average changes in prices Consumer Price Index CPI Liquidity How has you can turn something into cash most liquid thing you own cash things that are harder to liquidate house antiques art work don t want to have too much of these Four key players of the general economy 1 consumers 2 government 3 business 4 media Economics The study of the economy how wealth is created and distributed Wealth The total value of all items owned Tangible wealth Things you can see Intangible wealth Things you can t see Financial assets Intangible or paper assets such as savings and securities Tangible assets Physical assets such as home or cars Average propensity to consume Percentage of each dollar of income that an individual spends on average for current consumption Level of living Current state of living Standard of living Quality of life one seeks where you would like to be Federal Reserve System The Fed Regulates US monetary system including maintaining and adequate money supply Central bank of the United States Banks who need extra money go to The Fed The Treasury Prints the money Ben Bernanke Chair man of The Fed Doesn t hold political side Decides if interest rates goes up or down loans money to banks etc The Economic Cycle Expansion cid 224 Recession cid 224 Depression cid 224 Recovery Cycle that goes up and down always changing Expansion Growing economic activity low unemployment When things are growing wanted everyone doing well Recession Temporary slowing of the economy 2009 was the most recent Depression Downward trend high unemployment growth at standstill more than 10 unemployment want to avoid worst year 1933 Recovery Hopeful stage unemployment lessening economy moving upward Coming out of a recession Inflation Deflation Rising prices Dropping prices very rare Index of leading economic indicators Composite index averaging 11 components of growth New building manufacturing unemployment Consumer Price Index CPI Gross Domestic Product Widely used measure of average changes in price Checked yearly and monthly Market value of goods and services produced in one year US GDP World GDP Want GDP to move up Purchasing power Amount of goods and services an individual s money can buy Interest rate The cost of borrowing money Time value of money Theory that the value derived from the use of money over time increases its total by investment and reinvestment a dollar today invested correctly will be more if inflation continues Present value An asset s current value Future value The value in the future of a current amount of money or asset Compound interest Calculation of interest on interest Simple interest Interest on original sum of money Family household Two or more persons one of whom owns or rents the living quarters NonFamily household Cafeteria style benefits Householders who live either alone or wish others to whom they are not related A company will let you choose what type of benefits you want Perquisites Perks Job extras beyond usual benefits health dental eye etc company car company cell phone all paid for travel gym membership free lunch etc Interest rates such as home mortgages were very high Jimmy Carter 1977 1981 Democrat Inflation was high Alive Ronald Reagan 1981 1988 Republican Supply side economics government will give money to business and it ll trickle down to employees and consumers Passed away George Bush 1989 1993 Continued many of Regan s policies Oldest president alive 88 Bill Clinton 1993 2001 New Economy Emphasized growth Economy influenced by proliferation of computers cell phones and the internet Innovation prosperity and expansion George W Bush 2001 2009 Corporate and personal responsibility Republican Alive Barack Obama 2009 Came in during the recession Economic stimulus package Tax credits direct to employees through employers Democrat you should evaluate your financial plan at least once a year college graduates will make double of high school graduates people between the age of 45 54 have the highest median incomes percentage of nonfamily households is growing most sought after benefit health insurance most expensive women make 83 cents for every dollar a male makes a good benefits package can increase your total compensation 30 or more Best way to determine your financial status salary income Chapter 2 Financial Statements and Budgets Record keeping The process of recording the sources and amounts of money earned saved spent and invested over a specified time period Why keep good financial records Record reflects consumption Development money management strategies Retirement Crisis Inventory Location list of financial and legal records Safe deposit boxes Deposit boxes in the bank pay a monthly fee passports citizenship divorce child custody adoption and military service papers jewelry Home storage of records Safes at home must be fire proof Financial Statements Assessment of current status of finances Budgets Trace the flow of income and expenses over a period of time In the black Means they have good cash flow statement budget is doing well In the red Trouble financially review expenditures reduce spending Balance sheets or net work statements List value of assets and liabilities Fixed expenses The same amount each time period Variable expenses Expenditures over which individual has more control rent car payments insurance etc also known as discretionary spending eating out pet care entertainment etc Assets What is owned monetary tangible investment Liabilities What is owed Net worth Assets minus liabilities current long term most people do not know their
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