HDF 322 1st Edition Lecture 2 Outline of Last Lecture I Importance of Law in Family Finance Outline of Current Lecture II The Financial Planning Process a Personal Financial Planning b Advantages III 6 Step Process IV Developing Personal Finance Goals V Goal Setting Guidelines SMART VI Life Situation and Personal Values a Economic Factors b Global Influences c Economic Conditions VII Personal Opportunity Costs VIII Financial Opportunity Costs IX Time Value of Money a Future Value of a Single Amount b Future Value of a Series of Deposits c Present Value of a Single Value d Present Value of a Series of Deposits X Different Types of Annuities Current Lecture I The Financial Planning Process a textbook says managing money gets what you want protects natural resources helps control your money what you want done with it b really does help personal relationships because you have a sense of control over your money youre not borrowing complaining youre moving forward c gets you to feel more relaxed more in control freedom from worries we can lower it II 6 Step Process Circle Cycle in text 1 Determine where you are now These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute 2 Time value of your money 3 Courses of action 4 Where DO you wanna go 5 Make a plan and review after a few months review your plan you need to know where you are now so you can plot a path to WHERE you wanna gounderstanding income and expenses very important to know where you are now because then you can start moving forward step 2 is very important this is very important you need to understand yourself of how you handle feel use money important to know because that will guide your plan you will make out goes along with how why where did it come from that I feel that economic conditions that will influence the current and future finances and how you will spend your money goals need to be your OWN not someone else s 3 identify possible actions you can always continue might just expand maybe change whole new course have to identify diff alternatives of what you can do to get financial plan moving forward decision making is important to understand your own decision making style do nothing can be negative and positive can give you time to think through and then you can move forward in general prob not as good but sometimes good Step 4 Picture of nice car with nice woman says Consequences know the opportunity costs what is more expensive in longrun car or woman sometimes when you buy something consider OPPORTUNITY COST Thinking things through can be helpful Understand what you are giving up and what you are getting We don t do this as much as we should Looking at the OPP COSTS on what you are spending your money on is it something you want or others EVALUATING RISK Inflation risk Interest rate risk Income risk Personal risk Liquidity risk trying to have money that s liquid having money available and not suffering a loss selling a house is not liquid savings account very liquid these are diff risks that affect diff aspects of money Step 5 Some are good at planning but don t take first step to take action on it after you implement it need to review modify it for financial decision good to as a couple to say lets try it for a month or 2 and then go back and review it III Developing Personal Finance Goals a Can have different types of goals write them down and then order them by importance need to know WHAT your goals are b need a TIMELINE short term is 1 2 years for financial planning intermediate 25 longterm is 5 years c you need all types of goals to be working on d have to work on more than one goal at a time IV Goal Setting Guidelines SMART a SMART goals they are b c SPECIFIC a what a when and a how much have to have these components in a financial goal ex I wanna retire I wanna vacation d MEASURABLE that s why you have a timeline and money there are you getting to your goal is savings acct moving forward e ACTION so you know how to get moving on it you will save you will buy f REALISTIC nothings worse than a goal that s going beyond what you can really do g TIME FRAMEh these are the things when you are with anyone talk about these goals so you are all working forward towards the same goal V Life Situation and Personal Values this is discussed more in text we are moving into adult life cycle we are emerging adults before it was event oriented if you got married got a job then you were an adult you need to know what values are important to you is class 6th street important to youthat will help you make your decisions knowing whats important to you VI a Economic Factors b Global Influences we have global society now in anything all these countries having difficulties with money it will effect us as well And can impact the US so we are no longer isolated c Economic Conditions Understanding all these are important in personal finance VII Personal Opportunity Costs a when you are giving up something to get something else b this includes time c leisure health other persona lfactors d economic resources and management VIII Financial Opportunity Costs a TIME VALUE OF MONEY WHAT YOU NEED IN THE FUTURE AND YOU HAVE TO START NOW b Determining how much to save to meet future goals c do I save or spend savings IX Time Value of Money Dr Evil from Austin Powers a clip from Dr Evil he was frozen he comes back things have changed when he wants 1 million and the guy says ask for more because 1 million isnt enough these days 1 million isnt same value in time he was frozen vs time he was unfrozen 30 years went by for most of you you will be working for the next 30 years and you will need to think of lots of things for future 1 received now is always more valuable than futureTIME VALUE we cant compare value of two different periods so we have to adjust the value to understand what to do with your financial plan if you want to manage money time is good to help you get your goals since always comparing money in diff periods saving for house and paying it back over years etc very little in personal finance that doesn t have a thread to time value of money You struggled at first when you learned time value of money INTEREST CALCULATIONS Need principal interest rates timeline then you can use table to figure out time value a Future Value of a Single Amount b Future Value of a Series of Deposits i FUTURE putting a …