L1_Financial Goal Setting

Disposable Income Equation

Disposable Income = Income − Taxes

What is the abbreviation for discretionary cash flow/discretionary income

DCF

What is the DCF equation

Income-Taxes-Expenses

What is Credit

Borrowing against future wages

Who can view a credit report?

• Lenders

• Landlords

• Insurance

• Some employers

What is Wealth Accumulation?

Allocating current resources to future consumption for an increase in the purchasing power of its value

What are some ways you can invest your money?

• Stocks

• Bonds

• Mutual Funds

• Real Estate

What is Permanent Income?

An individual’s lifetime income

How do we manage financial risks?

Pay someone else to assume/estimate these risks, or we can retain the risk

Ways to manage household risk

• Retain the Risk

• Reduce the Risk

• Assume the Risk

• Transfer the Risk

What are SMART Goals

• Specific

• Measurable

• Attainable

• Relevant

• Time-bound

What is Future Value?

The amount to which current savings will increase based on a certain interest rate and time period.

Future Value Equation

FV = PV × (1 + i)ⁿ

PV

Present value (the amount saved today)

I

Interest rate (annualized)

N

Number of time periods (usually # of years)