Chapter 3 - Opportunity Costs and Strategies || Finance 1

Liquidity

the ability to easily convert financial assets into cash without loss of value

Accumulate

to collect

Time value of money

the increase of an amount of money due to earned interest or dividends

Personal financial planning

arranging to spend, save, and invest money to live comfortably, have financial security, and achieve goals

Goals

the things you want to accomplish

Present value

the amount of money you would need to deposit now in order to have a desired amount in the future

Annuity

a series of equal, regular deposits

Estimate

to make an approximate calculation of

Interest

the price that is paid for the use of another’s money

Consumer

a person who purchases and uses goods or services

Principal

the original amount of money on deposit in a savings account

Values

the beliefs and principles you consider important, correct, and desirable

Consider

to weigh opportunity costs

Service

a task that a person or a machine performs for you

Future value

the amount your original deposit will be worth in the future based on earning a specific interest rate over a specific period of time

Consume

to use up

Good

a physical item that is produced and can be weighed or measured

Demand

the amount of goods and services people are willing to buy

Economics

the study of the decisions that go into making, distributing, and using goods and services

Inflation

a general rise in the level of prices for goods and services over time

determine your current financial situation, develop your financial goals, identify alternative courses of action, evaluate your alternatives, create and use your financial plan of action, and review and revise your plan

What are the 6 steps to the financial process?

obtain, plan, spend wisely, save, borrow wisely, invest, manage risk, and plan for retirement

What are the 8 strategies for achieving your financial goals?

Evaluating risk

when you make a financial decision and you deal with a certain financial risk

Fixed expenses

costs that typically remain the same

Variable expenses

costs that can change regularly

Short term goal

takes one year or less to achieve

Intermediate goal

takes two to five years to achieve

Long term goals

takes more than a five years to achieve

consumable goods

purchases that you make often and consume, or use up, quickly

example of consumable good

food and products, like shampoo and conditioner

Durable good

expensive items that you do not purchase often

example of durable goods

cars and large appliances, like a fridge

Intangible items

cannot be touched but are often important to well-being and happiness

examples of intangible items

personal relationships, health, education, and free-time

Opportunity cost

the trade-off when make a choice

False

Interest rates provide as an indicator of how well people are living (T or F)

No

You can buy and touch intangible items (yes or no)

personal financial planning!!

Spending, saving, and investing to have the kind of life that you want to spend is achieved by what?