HeCol321

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  1. def`n Personal financial planning
    the process of managing your money to achieve personal economic satisfaction (resources, control, relationships, freedom)
  2. Financial planning process
    • 1. Determine current financial situation (current asset and debt balances)
    • 2. Develop financial goals (values, attitudes to money)
    • 3. Identify alternative course of action
    • 4. Evaluate alternatives (consider life situation, personal values, current economic situation, opportunity costs of money and time, risks)
    • 5. Create and implement financial plan
    • 6. Reevaluate and revise your plan (review regularly)
  3. Financial risks
    • 1. Interest rate risk
    • 2. Inflation risk -rising prices --> decreased buying power
    • 3. Liquidity risk -difficult to convert to cash without significant loss in value
    • 4. Product risk
    • 5. Risk of death
    • 6. Risk of lost income
    • 7. Health risk
    • 8. Asset and liability risk
  4. Financial goals are influenced by...
    • 1. personal values and attitudes toward money
    • 2. time frame
    • 3. financial need
    • 4. life situation (the life cycle approach)
  5. Life cycle approach to financial planning
    • 1. Early years (til mid 30s)
    • -emergeny fund, down payment on house or condo, purcahsing life insurance, retirement
    • 2. Middle years (mid 30s to 50s)
    • -building wealth
    • -pay down mortgage, increase savings and investments
    • 3. Middle Years (50+)
    • -retirement fund
    • 4. Retirement years
    • -efficient management of previously acquired wealth
  6. Financial goals shoud be...
    • 1. realistic
    • 2. specific and measurable
    • 3. have a time frame
    • 4. identify required action
  7. Def'n economics
    the study of how wealth is created and distributed
  8. Assess economic factors influencing personal financial planning
    • 1. market forces--supply and demand, production costs and competition
    • 2. Consumer prices--value of the dollar, inflation, increase in demand
    • 3. Interest rates--cost of money and credit, the return on money when saved or invested
    • 4. Money supply--dollars available for spending in economy
  9. def'n time value of money
    • increase in amount of money due to interest earned
    • -considered as an opportunity cost

    • amt now compounds to future value
    • present value discounts from amount later
  10. def'n simple interest
    interest compounded on the principal, excluding previously earned interest
  11. def'n compound interest
    interest earned upon previously earned interest
Author:
Anonymous
ID:
86866
Card Set:
HeCol321
Updated:
2011-05-20 06:05:57
Tags:
Personal Finance
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Description:
Personal Finance
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