Chapter 1 to 3 Study guide Personal Finance
Chapter 1 to 3 Study guide Personal Finance 53329 - FIN 108 - 007
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This 3 page Study Guide was uploaded by Peyton Goodwin on Thursday September 15, 2016. The Study Guide belongs to 53329 - FIN 108 - 007 at Indiana State University taught by Harry Edward Gallatin in Fall 2016. Since its upload, it has received 52 views. For similar materials see Pers Finan Mgt in Finance at Indiana State University.
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Date Created: 09/15/16
Personal Finance Chapters 1-3 Study Guide Exam 1 Personal Finance: the process of planning your spending, financing, and investing to optimize your financial situation. Personal Financial Plan: a plan that specifies your financial goals and describes the spending, financing, and investing plans that are intended to achieve those goals. Opportunity Cost: what you give up as a result of a decision. Components of a Financial Plan 1. Budgeting and tax planning 2. Managing your liquidity (cash or near cash) 3. Financing your large purchases 4. Protecting your assets and income (insurance) 5. Investing your money 6. Planning your retirement and estate Budget Planning: the process of forecasting future expenses and savings Evaluate your current financial position Assets: what you own Liabilities: what you owe Net worth: the value of what you own minus the value of what you owe Retirement planning: determining how much money should be set aside each year for retirement and how you should invest those funds Estate planning: determining how your wealth will be distributed before or upon your death • Personal cash flow statement: a financial statement that measures a person’s cash inflows and outflows • Cash inflows include salaries, interest, dividends • Cash outflows include all expenses, both large and small • Factors affecting cash inflows: – Stage in your career path • Closely related to your stage in the life cycle—college, career, retirement – Type of job • Based on skill level and demand for those skills – Number of income earners in your household • Budget: a cash flow statement that is based on forecasted cash flows for a future time period – Liquid assets are financial assets that can be easily sold without a loss in value – Household assets are items normally owned by a household, such as a home, a car, and furniture – Current liabilities: debts that will be paid within a year – Long-term liabilities: debts that will be paid over a period longer than one year • Compounding: the process of earning interest on interest • Future value interest factor (FVIF): a factor multiplied by today’s savings to determine how the savings will accumulate over time • Discounting: the process of obtaining present values • To determine present values, you need to know: -The amount of money to be received in the future -The interest rate to be earned on the deposit -The number of years the money will be invested Annuity due: a series of equal cash flow payments that occur at the beginning of each period Timelines: diagrams that show payments received or paid over time
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