Personal Finance

Five methods available for calculating time value of money

-Formula calculator -True value of money tables -financial calculator -Spreadsheet software -Website and apps

what are some factors that may cause people in their 50s spend money differently than people in their 20s?

-Household size -Income levels -Age

Advantages of effective personal financial planning includes:

-Increased effectiveness in obtaining, using, and protecting your financial resources throughout your life - Increased control of your financial affairs by avoiding excessive debt, bankruptcy, and dependence on others. -Improved personal relationships resulting from well-planned and effectively communicated financial decisions. - A sense of freedom from financial worries obtained by looking to the future, anticipating expenses, and achieving personal economic goals.

Types of Financial Goals

-Short-Term goals -Intermediate Goals -Long-Term Goals

According to the text, when there are influences on personal financial planning, what three elements should be assessed?

-The adult life cycle -Personal values - Economic factors

The Fed influences the money supply by:

-encouraging business growth -creating jobs -maintaining an adequate money supply

financial plan

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities.

Inflation

A rise in the general level of prices

Time value of money

Increase in an amount of money as a result of interest earned

When discussing personal financial growth, what is an import aspect?

Setting Goals

The main cause of inflation is an increase in consumer spending (demand) without an equal increase in:

Supply

Future value

The amount to which current savings will increase based on a certain interest rate and a certain time period

adult life cycle

The stages in the family situation and financial needs of an adult.

economics

The study of how wealth is created and distributed.

Opportunity cost

What a person gives up by making a choice

Personal values define a person and also what that person thinks is important. Your personal values also determine how you plan your finances

how do personal values affect your financial plan?

values

ideas and principles that a person considers correct, desirable, and important.

individual values

if you are going to get a raise in your salary next month, what factor will usually determine how you will spend or use your money?

the Federal Reserve System

purpose, to act as the nation's central bank

The fed is maintaining or increasing the money supply

what is the federal reserve doing when it lends more money, buys government bonds, and changes interest rates?

to calculate time value of money, the following items are needed

-length of time -annual interest rate -principal amount

Common financial goals and activities include:

-purchasing health insurance -planning for retirement -purchasing life insurance

American consumers spend dollars on goods and services. The goods and services are manufactured or offered by American companies and companies from other countries.This is an example of:

A global economy and foreign competition

the measure of the average change in the prices urban cinsumers pay for a fixed "basket" of goods and services is called...

Consumer Price Index (CPI)

the Fed has indirect control over interest rates. The fed attempts to make adequate funds available for which of the following

Consumer spending, business expansion

interest rates represent the true cost of...

Money

what is the current value of a future amount based on a certain interest rate and a certain time period? an example might be-how much do I need to save NOW at 6% in order to have $20,000 in 10 years.

Present Value

consumer spending is an economic factor that can not impact which of the following?

Tax Rates

Personal Financial Panning

The process of managing your money to achieve personal economic satisfaction

financial caculator

a variety of calculators are programmed with financial functions. both future value and present value calculations are performed using appropriate keystrokes

Credit

an arrangement to receive cash, goods, or services now and pay for them in the future

spreadsheet software

excel and other spreadsheet programs have built-in formulas for financial computations, including future value and present value

Intermediate goals

have a time frame of two to five years

Long-term goals

involve financial plans that are more than five years off, such as retirement, money for children's college education, or the purchase of a vacation home

website and apps

many time value of money calculators are available online and through mobile devices. these programs may be used to calculate the future value of savings as well as loan payment amounts.

consumer credit

refers to the use of credit for personal needs (except a home mortgage) by individuals and families, in contrast to credit used for business purposes

time value of money tables

traditionally, before calculators and computers, future value and present value tables were used to provide for easier computations

Person opportunity costs include using your time, in addition to or in place of money, to:

-satisfy your personal values -study to achieve your academic goals -to exercise to maintain good health

Rule of 72

used to determine the time that it would take for your money to Double. Just divide 72 by the annual inflation (interest) rate I.E. An annual inflation rate of 4 percent, means prices will double in 18 years (72/ 4 = 18).

Short-term goals

will be achieved witin the next year or so, such as saving for a vacation or paying off small debts

An important personal opportunity cost involves _______

Time

Risk Premium

represents the "extra" amount that you can expect to receive for investing in an instrument due to factors such as expected inflation and the uncertainty of getting your money back.

Formula calculator

with this conventional method, math notations are used for computing future value and present value

Printed materials, financial specialist, financial insitutions and online sources are the best resources

you are thinking of purchasing a home. You want to educate yourself about the financial aspects of purchasing a home. what would be good sources of info

Continue with the same action Take a new course of action change the current situation expand the current situation

Four alternative courses of action