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Mr. Elsesser Introduction to Financial Management

Unit 1B - SMART Goals & Decision Making

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Intro to Finance: Unit 1 - Budgeting

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Page 1: Unit 1B - SMART Goals & Decision Making

Mr. ElsesserIntroduction to Financial

Management

Page 2: Unit 1B - SMART Goals & Decision Making

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?

Page 3: Unit 1B - SMART Goals & Decision Making

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

Page 4: Unit 1B - SMART Goals & Decision Making

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…

Page 5: Unit 1B - SMART Goals & 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.

Page 6: Unit 1B - SMART Goals & Decision Making

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

Page 7: Unit 1B - SMART Goals & Decision Making

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

Page 8: Unit 1B - SMART Goals & Decision Making

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

Page 9: Unit 1B - SMART Goals & Decision Making

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

Page 10: Unit 1B - SMART Goals & Decision Making

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

Page 11: Unit 1B - SMART Goals & Decision Making

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

Page 12: Unit 1B - SMART Goals & Decision Making

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.

Page 13: Unit 1B - SMART Goals & Decision Making

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

Page 14: Unit 1B - SMART Goals & Decision Making

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

Page 15: Unit 1B - SMART Goals & Decision Making

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.

Page 16: Unit 1B - SMART Goals & Decision Making

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.

Page 17: Unit 1B - SMART Goals & Decision Making

NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins

Other InfluencesOther Influences

Page 18: Unit 1B - SMART Goals & Decision Making

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