FIN 3311 Chapter 1
Important measures of economic activity and health are:
GDP and unemployment rate
economic statistics
GDP, unemployment, inflation, interest rates, bank failures, etc.
Plans & Strategies
The exact steps you must take to reach your goals.
Financial goals and decisions should
be consistent with your personal values
Fee-only financial planners
charge fees based on the complexity of the plan they prepare and time
commission-based financial planners
earn commission on selling financial products such as insurance or annuities
personal financial tools
income, investment returns, interest earned/ paid, taxes paid, prices, etc.
intermediate- term goals are set for
the bridge between short- and long-term goals (next 2 to 5 years)
average propensity to consume
the percentage of each dollar of income, on average, that a person spends for current needs rather than savings
unemployment rate
the percentage of the labor force that is unemployed; rises or falls as a result of changing economic conditions
what is the purpose of accumulating wealth?
to accumulate as much wealth as possible while maintaining current consumption at a level that provides the desired standard of living.
GDP
total of all goods and services produced in a country; measure of economic growth
Psychology of Money
value system * ideals and beliefs that guide your life * shape your attitude toward money and wealth accumulation personal behavior * has effects on self-image * your personality and emotional makeup determine the role and importance of money in your life
professional financial planner
An individual or firm that helps clients establish financial goals and develop and implement financial plans to achieve those goals.
six-step financial planning process
1. Define financial goals 2. Develop financial plans and strategies to achieve goals 3. Implement financial plans and strategies 4. Periodically develop and implement budgets to monitor and control progress toward goals 5. Use financial statements to evaluate results of plans and budgets, taking corrective action as required 6. Redefine goals and revise plans and strategies as personal circumstances change
long-term goals are set for
6 years to the next 30-40 years
Rewards of Sound Financial Planning
Improved standard of living, spend money more wisely, accumulate wealth
Goals
Personal, big-picture objectives you set for how you'll save and spend money.
financial planning is
a dynamic process; your needs and goals will change
personal financial planning
a systematic process that considers important elements of an individual's financial affairs in order to fulfill financial goals
wealth
an accumulation of valuable economic resources that can be measured in terms of either real goods or money value (financial assets & tangible assets)
hybrid approach financial planners
involves both charging fees and collecting commissions
examples of financial shocks include
loss of a job, car accident, divorce or death of a spouse, severe illness, & support adult children or parents
Role of Money
medium of exchange; utility (amount of satisfaction received from buying goods/ services)
Standard of living is measured by...
necessities, comforts, and luxuries
Financial Goals
results that an individual wants to attain, such as buying a home, building a college fund, or achieving financial independence
Success is most likely if your goals are
specific, measurable, attainable, realistic, and timely
Financial goals must be
stated in monetary terms
Financial planning takes place in a dynamic economic environment created by the actions of
•Government: through regulation, expenditures and tax policies •Business: provide consumers with goods and services Consumers: their choices determine the kinds of goods and services that businesses will provide
How will this affect me?
•The heart of financial planning is making sure your values line up with how you spend and save. •An informed financial plan should reflect uncertainties and more.