!1!Chapter!1:!Personal!Finance!and!Career!Plan ning!!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!End!results!Needs!What!you!must!have!• you!NEED!to!eat,!you!WANT!a!lobster!or!steak!Wants!What!you!would!like!to!have!Opportunity!cost!The!cost!of!what!is!given!up!• TradePoffs!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!Consumer!Price!Index!(CPI)!Widely!used!measure!of!average!changes!in!prices!!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!!2!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!ExpansionRecessionDepressionRecovery!• 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!Rising!prices!Deflation!Dropping!prices,!very!rare!Index!of!leading!economic!indicators!Composite!index!averaging!11!components!of!growth!• New!building,!manufacturing,!unemployment!!!Consumer!Price!Index!(CPI)!Widely!used!measure!of!average!changes!in!price!• Checked!yearly!and!monthly!Gross!Domestic!Product!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!!3!NonFamily!household!Householders!who!live!either!alone!or!wish!others!to!whom!they!are!not!related!Cafeteria!style!benefits!A!company!will!let!you!choose!what!type!of!benefits!you!want!!• health,!dental,!eye,!etc.!!Perquisites!(Perks)!Job!extras!beyond!usual!benefits!• company!car,!company!cell!phone,!all!paid!for!travel,!gym!membership,!free!lunch,!etc.!Jimmy!Carter!• 1977P1981!!• Democrat!• Interest!rates!such!as!home!mortgages!were!very!high!• Inflation!was!high!!• Alive!Ronald!Reagan!!• 1981P1988!• Republican!• Supply!side!economics!–!government!will!give!money!to!business!and!it’ll!trickle!down!to!employees!and!consumers!• Passed!away!George!Bush!!• 1989P1993!• Continued!many!of!Regan’s!policies!• Oldest!president!alive!–!88!Bill!Clinton!!• 1993P2001!• “New!Economy”!• Emphasized!growth!• Economy!influenced!by!proliferation!of!computers,!cell!phones!and!the!internet!• Innovation,!prosperity!and!expansion!George!W!Bush!• 2001P2009!• Corporate!and!personal!responsibility!• Republican,!Alive!Barack!Obama!• 2009P!• 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!45P54!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!!4!!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!•
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