Personal Finance Ch. 1

Personal Financial Planning

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

Financial literacy

The use of knowledge and skills for earning, saving, spending, and investing money to achieve personal, family, and community goals.

Financial plan

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

Adult life cycle

The stages in the family situation and financial needs of an adult.

DINK

Dual income no kids.

Personal factors

Influencing spending and saving patterns include age, income age, income, household size, and personal beliefs

Societal changes

Also influences financial needs with delaying marriage, dual-income households, single parent households, and caring for both children and elderly parents.

Values

The ideas and principles that a person considers correct, desirable, and important.

Economics

The study of how wealth is created and disturbed.

Economic environment

Business, labor, and government working together to satisfy needs and wants.

The federal reserve system or the FED

Attempts to maintain an adequate money supply to encourage consumer spending, business growth, and job creation.

Stock

Share to a business fund, partial owner of business funds

Bond

Share to a business fund, partial owner of business funds

Municipal bonds

a bond issued by state or local governments, or entities they create such as authorities and special districts.

Treasury bonds

government debt instruments issued by the United States Department of the Treasury to finance government spending as a supplement to taxation

Global influences

US economy is affected by foreign investors and competition from foreign companies.

when the level of exports of US goods is lower than the level of imported goods, what happens?

more US dollars leave the country than foreign dollars coming in

forces of supply and demand usually influence?

interest rates

when consumers expand their saving and investing…

supply increases and interest rates tend to decrease

as borrowing by consumers, businesses, and government increase…

interest rates are likely to rise due to increased demands

earnings you receive as a saver or investor reflects?

current interest rates, as well as a risk premium

inflation goes up =

interest rate goes up

deflation goes down =

interest rate does down

what is inflation?

a rise in the general level in prices

who affected the most by inflation?

most harmful to people with fixed incomes

what is the consumer price index?

computed and published by the bureau of Labor Statistics

CPI measures average change in the prices consumers pay for…

a fixed “basket” of good and services

what is COLA?

cost of living adjustments

who’s the most affected by COLA?

people with fixed incomes are the most effected

what is the rule of 72?

dividing 72 by the annual inflation/interest rate percent

what are short term financial goals?

goals that will be achieved within the next year

what are intermediate financial goals?

a time frame of 2 to 5 yrs to purchase a car, home etc.

what are long-term financial goals?

financial plans that are more than 5 years in the future