Overview of Personal Finance

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Overview of Personal Finance
Chapter 1
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• What is Personal Finance?
• Personal finance
  the financial issues that
  can affect an individual
• The handling of your money
• Financial decisions will
  be different for everybody
• We all will use
  the same
  tools
• Becoming knowledgeable
• Should be a goal for everyone
• Can improve every aspect of life

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• This course will help you to understand
  the important financial decisions you will soon
  make
• Will you plan to
• Live
  paycheck-to-paycheck, fending off bill
  collectors?
• Live with peace of mind and financial security,
  knowing you made good decisions along the way?

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• What is Personal Financial Planning?
• Personal Financial Planning
  process of planning
  
  every aspect of
  your personal
  finances
• Spending
• Borrowing
• Saving
• Investing
• Each aspect of
  personal finances
  is used to achieve the
  highest
  quality of life possible

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• Steps to Personal Financial Planning
• Everyone creates own plan
• A road map of spending,
  borrowing, saving, and
  investing to achieve their goals
• A good plan will include
• Budgeting of your income
• Management of borrowing
• A plan for saving money
• Plan for investment/retirement
• Management of your assets
• Asset something owned, has value
• Liquid asset an asset that can
  be rapidly
  exchanged for cash,
  w/o significant risk of loss
• Best Example bank account
• Insurance for assets

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• A good plan continued
• A career choice
• Will spend a lot of time
• Fit your personality?
• How much pay?
• Training/education?
• In general, more
  education higher wages
• Plan for paying taxes
• U.S., state, local
• Credit/borrowing decisions
• If used wisely, can increase your wealth
• Misuse can be disastrous
• Many suffer from credit debt because
  they did not plan
• Most of us will use credit to make larger
  purchases possible (car, home, etc.)

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• The Need for Personal Financial Planning
• U.S. citizens among worlds wealthiest
• However, many pay little/no attention to their
  personal finance
• 30 of HS students use a credit card
• 80 of college students use a credit card
• Over 2 million people filed bankruptcy in 2005
• Bankruptcy legal process, court takes over some
  of a persons
  finances, if they are no longer able to pay
• Savings in the U.S. is negative
• People are spending more than they earn
• 50 of Americans live paycheck-to-paycheck
• 40 of Americans dont save for retirement
• Economic uncertainties
• Increased healthcare costs, Social Security, etc.
• Importance of learning this class content
• Less impacted by uncertainties
• Control your own destiny

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• Benefits of Good Decision-Making
• Helps to achieve goals
• Especially w/early knowledge
• Can help to define goals
• College, car, career, home, etc.
• You cant have everything
• Must consider opportunity cost
• Considering opportunities
  
  which are given up when
  
  making purchasing decisions
• IPod or IPhone
• monetary cost
• Giving up opportunity
• Can transform spending habits

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• Opportunity Cost Example
• Starbucks Coffee
• 3/day
• 90/month
• 1,095/year
• But, think about this
• Age of 16
  100/month investment
• 12 profit each year
• Age of 56
  would grow to 1 million
• Good financial decisions can lead to
  achieving your desires
• Money cant buy happiness, but can
  provide peace of mind

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• What Are You Planning For?
• Each person has
  their own goals
• Some goals
  are
  short-term
• Cell phone, vacation, etc.
• Some goals
  are
  long-term
• House, open own business
• W/good planning,
  one can work
  towards
  different-length goals,
  
  all at the same time

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• Education/Career
• Explore career options, education
  requirements
• Costs time money
• How will you pay?
• Emergency Fund
• Plan for the unexpected
• Unexpected events
• car breakdown
• Interruption of wages
• Illness, job change
• Car
• How will you obtain a car?
• When do you want to obtain it?
• Brand new, or used?

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• Home
• Dream home?
• Maybe begin to save now, means less needed
  later
• Travel, rent apartments?
• Family
• Can be expensive
• From birth to age 22, approximately 250,000
• Retirement
• Social Security uncertainties
• Early retirement?
• Many work well into their 60s, because they need
  the money