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Intro to Finance: Unit 1 - Budgeting
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Mr. ElsesserIntroduction to Financial
Management
NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins
Objective:
• Define the purpose of Decision Making
and creating a Financial Plan
• Analyze trade offs of an economic decision
• Identify economic risk factors to consider in the decision making process
Do Now:
How does the process of Decision Making relate to your SMART Goals project?
The Decision- Making The Decision- Making ProcessProcess
EvaluateEvaluateResultsResults
Make a DecisionMake a Decision
Identify YourIdentify YourGoalGoal
Weigh Pros Weigh Pros and Consand Cons
EstablishEstablishCriteriaCriteria
Monitor & ModifyMonitor & Modifythe Planthe Plan
Implement Implement the Planthe Plan
Set GoalsSet Goals
Create a PlanCreate a Plan
AnalyzeAnalyzeInformationInformation
The Financial The Financial Planning ProcessPlanning Process
Decision Making and Financial PlanningDecision Making and Financial Planning
1-L1-L
NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins
Alternatives
Consequences
Opportunity Cost
Risk
Financial Planning also means....Decision Making…
NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins
You Know What You WantYou Know What You Want
1-M1-M
In order to make a good decision you must be informed of In order to make a good decision you must be informed of what you need to do to achieve it!what you need to do to achieve it!
What is What is opportunity costopportunity cost??
A possibility that you give up whenA possibility that you give up whenyou make one choice insteadyou make one choice insteadof another.of another.
Example: Example: You can buy You can buy coffee every day or coffee every day or
save save money and get a data money and get a data planplan
for your phone. for your phone.
NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins
Opportunity Cost“Consequences of Choices”
**A Trade off…...
**Refers to what you give up when a decision is made or the cost of giving up one thing in order to get something that you want more;
**The cost may involve your time, money, and/or effect
NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins
Identifying More Examples:
Personal: For example time spent on studying usually means lost time for hanging out with your friends.
Financial:For example, the purchase of an item with money from your savings means your will no longer earn interest on that money
NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins
Consequences
**Outcomes or results of a decision;
**What will happen depending upon what you choose to do.
**These are determined by your actions or lack of actions
NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins
Alternatives
**Choices….
**Different ways to solve a problem;
**Opportunities to choose between several courses of action
NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins
Risk
**The possibility that your decision will result in a negative outcome;
**Taking a chance;
**Risk may involve losing money
NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins
Risk
1) Inflation Risk2) Interest Rate Risk3) Income Risk4) Personal Risk5) Liquidity Risk
NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins
Inflation Risk
Inflation is the rise in the level of prices
for goods and services over time
Inflation Risk Example:If you wait to buy a car until next
year, you accept the possibility that the price may increase.
NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins
Interest Rate Risk
Interest is the price that is paid for theuse of another’s money
Interest Rate Risk Example: Interest rates go up and down, which may affect the cost of borrowing or the profits you earn when you save or invest
NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins
Income Risk
Income Risk – you may lose your job due
to unexpected health problems, familyproblems, an accident, or changes in
your field of workHow Can you prepare? Prepare and save – build up 3-4 months
ofsavings to cover cost of living
NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins
Personal Risk
Personal Risk: Risk you assume yourself based upon your actions or choices.
Personal Risk Example – Driving for eight hours on icy mountain roads may not be worth the money youwould save on airfare.
NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins
Liquidity Risk
Liquidity is the ability to easily convertyour financial resources to cash without aloss in value
Liquidity Risk Example: Some long-term investments, such as a
house or an antique doll collection, can be difficult to convert to cash quickly.
NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins
Other InfluencesOther Influences
NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins
People
OtherPublications
Agencies
Magazines Books
Social Media
In Order to Make a Good Choice…
Find Advice; Find Information Find Advice; Find Information Making a good choice equals using…Making a good choice equals using…
Internet