Personal Finance - Review #1

Annuity

A series of equal amounts (deposits or withdrawals) made at regular time intervals.

Cash Flow

The actual inflow and outflow of cash during a given time period.

Collateral

A valuable asset that is pledged to ensure loan payments.

Dividend

A distribution of money, stocks or other property that a corporation pays to shareholders.

Financial Plan

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

Guaranteed Investment Certificates (GICs)

Term deposits made for a longer period, usually from one to five years.

Inflation

A rise in the general level of prices.

Liquidity

The ability to readily convert financial resources into cash without loss in value, and the ability to buy/sell investments quickly without affecting its value.

Interest Rate

A periodic charge for the use of credit; affects the costs when borrowed and invested, along with affect savings.

“SMART”

Specific, Measurable, Action Oriented, Realistic, and Timely.

Money Supply

Measures the dollars available for spending in our economy.

Gross Domestic Product (GDP)

Measures the value of goods and services produced within a country’s borders, including items produced with foreign resources.

Trade Balance

Measures the difference between a country’s exports and imports.

Time Value of Money

The increases in amounts of money because of interest earned. Can be calculated from financial opportunity costs.

What are the three key activities to personal financial planning?

Spending, saving and sharing

Personal Planning

The process of managing your money to achieve personal economic success/satisfaction.

Finance

The study of the supply/demand that affects our decision making processes.

Values

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

Yield

The rate of return earned by an investor who holds a bond for a stated period of time.

Opportunity Costs

What a person gives up by making a choice. Commonly known as a trade-off from a decision and can be measured towards money and personal elements.

Developing Financial Goals (Process)

The first step to the cycle procedure. Analyzes your values and attitude towards money, and identifies the need to shape your goals towards your relationship with finances.

Determining Current Financial Situations (Process)

The second step to the cycle procedure. Recognizes the situation involving income, savings, debts, and expenses. Prepares your situation with a financial list and provides a start to planning.

Identifying Alternative Courses of Action (Process)

The third step to the cycle procedure. Allows for people to explore your situation and be able to make more effective decisions. Identifies that not all plans are going to work out.

Evaluate Alternatives (Process)

The fourth step to the cycle procedure. Looks over to circumstances to where life situations may change personal values and economic elements. Questions how you like to spend leisure time, changes in interest rates, etc.

Create and Implement the Plan (Process)

The fifth step to the cycle procedure. Allows you to choose the ways that you tend to achieve your goals. Identifies that good financial planning requires information.

Reevaluation and Revision (Process)

The final step to the cycle procedure. In the case of the process diverting due to changes in personal, social and economic factors. Can require more frequent assessments.

Personal Opportunity Costs

A cost that includes time and effort made and how it affects us personally.

Financial Opportunity Costs

A cost that includes interest, liquidity and safety of investments. Requires the identification of the “time value of money” in order to decide and adjust your financial plan.

Economic/Product Risk

A risk that involves interest rates, inflation, liquidity and product. Anything that is financially in reach.

Personal Risk

A risk that can include death, income loss, health and liabilities. Anything that is at your own reach.

Why is creativity vital for decision making, according to the study of finances?

As people tend to fall towards continuing the same course of action- it leans them towards to a more dangerous route where they loss more than they can gain. By making effective choices, you must consider all possible alternatives.

Spending

A main decision area that points towards living expenses, expenditures, and recreational activities. Considered one of the biggest struggles for people to manage.

Saving

A main decision area that points towards emergencies, long-term financial security and investment pooling.

Sharing

A main decision area that points towards potential local and global program assistance via donations.

Future Value / Compounding

The yielding of amounts to which a current sum will increase based on certain interest rates and period of time.

Present Value (Discounting)

The current value of a future sum based on certain interest rates and periods of time.

What is NOT a main component of personal financial planning?

Stalling

What is NOT a main component of personal financial planning?

Reminiscing