University:
Eastern Kentucky University
Course:
FIN 201 | Personal Money Management
Academic year:

2020
Views:

211

Pages:

2
Author:

Lance Gutierrez

Personal Finance Chapter 1  Financial Planning Personal financial planning is the process of managing your money to achieve personal economic satisfaction.      Advantages Increased effectiveness in obtaining, using, and protecting your financial resources Increased control of your financial affairs o Avoiding excessive debt Improved personal relationships A sense of freedom from financial worries Feel prepared to deal with: o Unexpected financial emergencies o Tough economic times o Loved ones looked after in the event of my death             The Financial Planning Process Determine your current financial situation Develop your financial goals Identify alternative courses of action Evaluate alternatives and o Consider: Life situation Personal values Economic factors o Assess: Risk Time value of money Opportunity cost Create and implement your financial action plan Review and revise the financial plan  Developing Personal Financial Goals Financial goals are influenced by; o Personal values and attitudes towards money o Time frame in which you want to achieve your goals. o Type of financial need that drives your goals. o Your life situation Developing Personal Financial Goals – Your Life Situation           Average person goes through four basic stages in personal financial management; o the life cycle approach to financial planning 1. Early years (until the mid-30’s) Focus often on consumption: car, buying 1st home, furniture, work clothes, electronics, children’s stuff (crib, car seat, diapers, clothes, toys, on & on). Challenge? Get through with no or minimal consumer debt! 2. Middle years (mid-30’s to mid-50’s) Focus on building wealth by paying down mortgage and increasing savings and investments 3. Middle AGE (50’s+) Focus is on providing an adequate retirement fund 4. Retirement Years Focus is on the efficient management of previously acquired wealth      SMART GOALS Specific: vacation, children’s education, debt free, new vehicle, retirement Measurable: How much Attainable: Cash Flow & Debt Mgt. Plan Relevant: Aligned with life goals Time Bound: o Short-term o 0 to 2 years o Med-term o 3 to 7+ years o Long—term 10+ years    INFLATION Inflation is the general increase in the price of goods and services Measured through the Consumer Price Index (CPI) Harmful to people on fixed incomes   CHANGING ECONOMIC CONDITIONS Inflation: Each year Statistics Canada purchases a basket of goods covering all sectors of the economy By comparing the cost of this basket of goods to the cost of a similar basket of good purchased the previous year, they establish the Consumer Price Index or the Rate of Inflation