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 RiskInflation Risk

Inflation 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