Personal Finance: Opportunity Costs and Strategies (Section 1.2)

Compounding

-add interest earned in the first year to the principal -take the amount and multiply it by the annual interest rate

Future Value of a Series of Equal Annual Deposits

1. Look at the table and find the year x the percentage (Ex: 8 years @ 7% =1.718) 2. Multiply initial amount by that number (Ex: 10,000 x 1.718 = 17180)

Future Value of a Single Deposit

1. Take the initial amount and multiply it by the interest (Ex: 10,000 @ 3% interest----->10,000*.03=300) 2. Add the interest to the initial amount (Ex: 10,000+300=10,300) 3. Add the interest to the amount after the first year then (Ex: 10,300 @ 3% interest-----.10,300*.03=309 10,300+309=10609)

What are 4 types of personal opportunity costs?

1. health 2. knowledge 3. skills 4. time (knowledge and skills are essentially the same thing)

What are three types of financial opportunity costs?

1. spend 2.save 3. invest

Strategy 5 for achieving your financial goals

Borrow Wisely ( avoid borrowing when possible --borrow no more than ⅓ of what u intend to make your first year out of college)

Strategy 6 for achieving your financial goals

Invest (do it at your own risk--ALWAYS a risk)

Strategy 7 for achieving your financial goals

Manage Risks (consider insurance in case "stuff happens")

Strategy 1 for achieving your financial goals

Obtain money

What are the two types of opportunity costs?

Personal and Financial

Strategy 2 for achieving your financial goals

Plan ( figure out what to do with it)

Strategy 8 for achieving your financial goals

Plan for retirement (have a goal & always consider options for retirement)

Strategy 4 for achieving your financial goals

Save at any opportunity

Strategy 3 for achieving your financial goals

Spend Wisely (be realistic)

What are the three things involved with calculation interest?

the principle (p) the annual rate (r) the amount of time the money will be in the account (t)