CSM 204Exam # 1 Study Guide Lectures: 1 - 5CSM 204 Exam 1 Review SheetDefinition of Personal Financial PlanningThe process of managing your money to achieve personal economic satisfactionGoal of Personal Financial PlanningObtain financial securityAdvantages of Personal Financial PlanningEffective managing of resourcesObtaining, using and protecting your financial resources throughout your lifeControl of financial affairsAvoiding excessive debt, bankruptcy, dependence on others for economic securityImproved personal relationshipsCommunicating financial goals with those that can help you achieve itFreedom from financial worryLooking into the future and anticipating expenses and achieving personal economic goalsLevel vs. Standard of Living (Slide)The level of living is they way that we can afford to live todayThe standard of living is the way we want to live financiallyFinancial planning is working to bring those two closer togetherDefinition of Financial Success (Slide)The achievement of financial aspirations that are desired, planned, or attempted – defined by the individual who seeks it3 Components of Successful PlanningSpecified valuesThings like reserved emergency account, it’s not okay to over draw at the bank, etc.Explicitly stated financial goalsKnowing a dollar amountConsistent financial strategiesA strategy that MAKES SENSESteps in the Personal Financial Planning Process and What Occurs in Each1. Determining your current financial situationDetermine income debt and living expenses Prepare a balance sheet and cash flow statementMatch financial goals to current income and potential earning power2. Develop your financial goalsIdentify your feelings about moneyDetermine the source of your money feelings(Mercedes vs. Kia example)Determine the effects of economy on your goals and prioritiesMake sure your goals are your own and are specific to your situationThe purpose of this analysis to differentiate you wants from your needs3. Identify alternate courses of actionThere are four possible courses of action:Continue course of actionAfter evaluation, you decide that the amount you save/use each month is appropriate, so there is no reason to change it.Expand current situationAfter evaluation, you decide that you may want to save more and spend less or vice versa based on your current financial situationChange current situationAfter evaluation, you decide to change where your put your moneyTake a new course of actionAfter evaluation, you decide you completely change where you put your money and how you use itCreativity is vital to effective choicesDoing nothing is a dangerous course of action4. Evaluate AlternativesConsequences of ChoicesOpportunity CostWhat you give up by making a choiceEvaluating RiskWhat consequences could result if you go down the path you have chosen?Financial Planning Information SourcesBook, apps, websites, financial planner, etc.5. Create and implement your financial action planDevelop an action plan that identifies ways to achieve financial goalsPossible action plans can be increasing savings, reducing spending, or making provisions for taxes6. Review and Revise your planAssess decisions regularlyMake minor decisions weeklyDo an overview review monthlyDo a complete review annuallyTypes of riskInflation RiskIf we wait, it may go up in price faster than our savings can account for it Interest Rate RiskRates change and you want to buy at the top of the marketIncome RiskWhat happens if you lose your income or it reduces?Personal RiskWhat happens outside of the market can affect the amount of money you haveLiquidity RiskHow quickly can you get your money if you need it?Some savings and investments have potential for higher earnings, however, they make require you to keep your money in that account for a designated amount of time.Timing of goals Short-term goalsCan be achieved within a year or lessIntermediate goalsCan be achieved in one to five yearsLong-term goalsCan be achieved in more than five yearsTypes of goals and goal setting guidelines Specific, Measurable, Action-oriented, Realistic, Time-basedDefinition of adult life cycleThe stages in the family and financial needs of an adult can influence financial activities and decisionsLifestyle changes can change your financial standingGraduationEngagement/marriageHaving a childCareer change or moveDependent children leaving homeChanges in healthDivorceRetirementDeathsPersonal and financial opportunity costs If your give up personal opportunity costs such as time, effort and health or financial opportunity costs such as interest, liquidity, or safety, you can receive financial acquisitions like cars, houses, college educations, investments, insurance coverage, and retirement funds.Definition of financial plan The plan you implement to achieve financial goalsCareers vs. jobsA job is a position obtained to earn money whereas a career is a commitment to a profession the requires continued trainingEducation and incomeExtra money earned in 40 yearsTwo-year degree - $1,700,000Bachelor’s Degree - $2,300,000Master’s Degree - $2,600,000Professional or Doctorate Degree- $3,600,000Competencies of successful people General SkillsWork well with othersTaking initiative to meet challengesInterest in reading and continual learningCope with conflict and changeFinancial awarenessProblem solving abilityExcellent communication skillsTechnical SkillsSkills specific to a professionOften learned during college, internships, or training programs at workStages of the career planning process1. Assess and research personal goals, abilities, and career fields2. Research the employment market and identify specific employment opportunities3. Develop and resume and cover letter. Apply for available positions4. Interview for available positions and assess your interview performance5. Evaluate financial and other factors of positions you are offered6. Plan and implement a program for career developmentObtaining employment experience What you can do now to make you a good candidate for a job laterCampus ProjectsInternshipsVolunteer workPart-time employmentFull-time employmentCareer information sources LibraryCareer CenterNetworkingReferencesCompany visitsOpportunity cost and money management The cost or trade-off of a decision cannot always be measured in dollars. Sometimes the cost is your time.Money management refers to the day-to-day financial activities necessary to manage currentpersonal economic resources while working