introduction to business and marketing. explain the steps involved in the financial planning...

Managing Personal Finances

Introduction to Business and Marketing

ObjectivesExplain the steps involved in the

financial planning process.

Identify sources of financial information.

Discuss sources of risk.

Discuss the consequences of choices.

The Main Idea Financial planning provides a solid foundation for

making financial decisions. It involves looking at

your financial position and setting goals.

Read “Teach Your Teens Financial Responsibility”

Personal financial planning will

help you reach your goals

Includes spending, saving and

investing your money in a way

that provides enjoyment AND

financial security

Making Financial Decisions

Financial Planning StepsDetermine Your

Financial Situation

Develop Your Financial Goal

Identify Possible Courses of

Action

Evaluate Your Alternatives

Implement a Financial Plan of

Action

Review and Revise Your Plan

Make a list to help you

determine your

financial situation

A good way to

estimate your

expenses is to

carefully track them

for one month

Step 1: Determine Your Financial Situation

Savings

Monthly Income

Monthly Expenses

Debts

My Financial Situation

Think about your attitude toward money

◦Do you want to spend money now or save for

the future?

◦What are your wants and needs?

◦Do you want to get a job right after high

school or continue your education?

Step 2: Develop Your Financial Goals

Consider your options before

making a decision

Generally you will have

several possible courses of

action

Step 3: Identify Possible Courses of Action

Use sources of financial

information to help you

evaluate your alternatives.

Consider the consequences

and risks of each decision you

make.

Step 4: Evaluate Your Alternatives

A plan of action is a list of ways to achieve

your financial goals.

If your goal is to increase your savings, a

plan of action could be to cut back on

spending, or get a part-time job.

Step 5: Implement a Financial Plan of Action

As you get older, your finances

and needs will change.

You should reevaluate and revise

your financial plan every year.

Step 6: Review and Revise Your Plan

The Internet

Magazines

Newspapers

Sources of Financial Information

When you make a financial decision, you also accept certain risk.

Understanding Risk

Types of Financial Risk

Inflation RiskInflation is the general increase in the cost of goods. If you wait to purchase you could risk the price increasing

Interest Rate RiskInterest rates rise and fall, which may affect the cost of borrowing or the profit you earn off investing

Income Risk Your income may rise and fall (lose your job or get a better job)

Personal Risk Some choices increase risk

Liquidity RiskLiquidity is the ability to convert your recourses into cash easily without losing value

Insurance can minimize risk by protecting

investments like houses and cars

Diversification – spreading wealth out over

different types of investments

Minimizing Risk

An opportunity cost is sometimes called a

tradeoff.

◦ It is whatever you give up when you make a

choice

Consequences of Choice

Lawn and Order - Why its Important to Save

Debt of a Salesman - Debt and Borrowing M

oney