Chapter 1 Personal Finance and Career Planning Personal Finance Financial Planning steps 3 how people spend save invest and protect insurance their financial resources money 1 Setting financial goals 2 Create and activating action plan 3 Monitoring evaluating and revising plans Principles that guide behavior some people are thrifty tight etc many types of values Likes and dislikes End results What you must have you NEED to eat you WANT a lobster or steak Wants Opportunity cost What you would like to have The cost of what is given up Trade offs 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 Avoidance of risk Dealing with risk 2 over the past two years determined by the government through CPI Widely used measure of average changes in prices 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 1 consumers 2 government 3 business 4 media The study of the economy how wealth is created and distributed The total value of all items owned Things you can see Things you can t see Intangible or paper assets such as savings and securities Physical assets such as home or cars Percentage of each dollar of income that an individual spends on average for current consumption Current state of living Value Attitudes Goals Needs Risk Risk aversion Risk tolerance Inflation Consumer Price Index CPI Liquidity Four key players of the general economy Economics Wealth Tangible wealth Intangible wealth Financial assets Tangible assets Average propensity to consume Level of living Standard of living Federal Reserve System The Fed Quality of life one seeks where you would like to be 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 Ben Bernanke Prints the money Chair man of The Fed The Economic Cycle Expansion Recession Depression Recovery Doesn t hold political side Decides if interest rates goes up or down loans money to banks etc Cycle that goes up and down always changing Growing economic activity low unemployment When things are growing wanted everyone doing well Expansion Recession Depression Downward trend high unemployment growth at standstill Temporary slowing of the economy 2009 was the most recent more than 10 unemployment want to avoid worst year 1933 Recovery Inflation Deflation Index of leading economic indicators Consumer Price Index CPI Gross Domestic Product Purchasing power Interest rate Time value of money Present value Future value Compound interest Simple interest Family household Hopeful stage unemployment lessening economy moving upward Coming out of a recession Rising prices Dropping prices very rare Composite index averaging 11 components of growth New building manufacturing unemployment 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 Amount of goods and services an individual s money can buy The cost of borrowing 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 An asset s current value The value in the future of a current amount of money or asset Calculation of interest on interest Interest on original sum of money Two or more persons one of whom owns or rents the living quarters NonFamily household Cafeteria style benefits Perquisites Perks Jimmy Carter Ronald Reagan George Bush Bill Clinton George W Bush Barack Obama 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 health dental eye etc Job extras beyond usual benefits company car company cell phone all paid for travel gym membership free lunch etc Interest rates such as home mortgages were very high Inflation was high 1977 1981 Democrat Alive 1981 1988 Republican Supply side economics government will give money to business and it ll trickle down to employees and consumers Passed away 1989 1993 Continued many of Regan s policies Oldest president alive 88 1993 2001 Emphasized growth Economy influenced by proliferation of computers cell New Economy phones and the internet Innovation prosperity and expansion 2001 2009 Corporate and personal responsibility Republican Alive 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 Best way to determine your financial status salary income a good benefits package can increase your total compensation 30 or more Chapter 2 Financial Statements and Budgets Record keeping Why keep good financial records The process of recording the sources and amounts of money earned saved spent and invested over a specified time period Record reflects consumption Development money management strategies Retirement Crisis Inventory Safe deposit boxes Location list of financial and legal records Deposit boxes in the bank pay a monthly fee passports citizenship divorce child custody adoption and military service papers jewelry Safes at home must be fire proof Assessment of current status of finances Trace the flow of income and expenses over a period of time Means they have good cash flow statement budget is doing well Trouble financially review expenditures reduce spending List value of assets and liabilities Variable expenses Expenditures over which individual has more control The same amount each time period rent car payments insurance etc also known as discretionary spending eating out pet care entertainment etc What is owned monetary tangible investment What is owed current long term Assets minus liabilities if your net worth is negative you re in debt most people do not know their net worth 1 setting goals 2 planning 3 4 evaluating implementing Solvency Insolvent Financial advisors Ability to pay debts Person owes
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