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.