Ch. 1 Personal Financ. Planning in Action Flashcards
1. Identify social/economic influences on personal financial goals & decisions 2. Develop personal financial goals 3. Calculate time value of money situations to analyze personal financial decisions 4. Implement a plan for making personal financial & career decision
Define “personal financial planning”
Process of managing your money to achieve personal economic satisfaction
Define “financial plan”
A formalized report summarizing current financial situation, analyzing financial needs, recommending future financial activities
Define “economics”
The study of how wealth is created & distributed
Define “inflation”
Rise in the general level of prices
What’s the Rule of 72?
Divide 72 by the annual inflation/interest rate to see how fast prices will double
What are the eight major financial planning activities?
Obtaining, planning, saving, borrowing, spending, managing risk, investing, retirement/estate planning
How long are short-term, intermediate, and long-term goals?
~12 months, ~2-5 years, 5+ years
Define “consumable-product goals”
Goals occurring on a periodic basis for quickly used items (food, clothing, entertainment)
Define “durable-product goals”
Goals infrequently purchased, like expensive items (appliances, cars, sporting goods)
Define “intangible-purchase goals”
Personal relationships, health, education, community service, leisure, etc.
What’s the S.M.A.R.T. approach?
Specific, Measurable, Action-oriented, Realistic, Time-based
Define “opportunity cost”
What you give up by making a choice
Define “time value of money”
The increase in an amount of money as a result of interest earned
What is needed to calculate interest?
- the amount of savings (principal), 2. annual interest rate, 3. length of time money is on deposit
Define “future value”
the amount to which current savings will grow based on certain interest rate & certain time period
