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CSM 204 Week 1 Notes

by: godfreytorrance

CSM 204 Week 1 Notes CSM 204

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About this Document

Notes covering Chapter(s) 1-3 for CSM 204
Intro to Personal Finance Planning
Caroline Fulmer
Class Notes
financial, Planning




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This 12 page Class Notes was uploaded by godfreytorrance on Thursday August 25, 2016. The Class Notes belongs to CSM 204 at University of Alabama - Tuscaloosa taught by Caroline Fulmer in Fall 2016. Since its upload, it has received 30 views. For similar materials see Intro to Personal Finance Planning in Human & Consumer Sciences at University of Alabama - Tuscaloosa.

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Date Created: 08/25/16
CSM – Chapter 1-3 Notes (Week 1) 1. Personal Financial Planning – The process of managing your money to achieve personal economic satisfaction. i. Advantages a) Effective managing of resources b) Control of financial affairs c) Improved personal relationships d) Freedom from financial worry 2. Level vs. Standard of Living i. Level of Living – the way we can afford to live today and make ends meet. ii. Standard of living – how we want to live financially iii. We often have to work to bring the two together. 3. Financial Success – The achievement of financial aspirations that are desired, planned, or attempted. It is defined by the individual who seeks it. 4. The Financial Planning Process i. Determine current financial situation ii. Develop financial goals iii. Identify alternative courses of action iv. Evaluate alternatives v. Create and implement the plan vi. Review and revise the plan 5. Step 1: DETERMINE YOUR CURRENT FINANCIAL SITUATION i. Determine income, debt and living expenses. ii. Prepare a balance sheet and cash flow statement. iii. Match financial goals to current income and potential earning power. 6. Step 2: DEVELOP YOUR FINANCIAL GOALS i. Identify your feeling about money ii. Determine the source of your money feelings. iii. Determine the effects of economy on your goals and priorities. iv. Make sure your goals are your own and are specific to your situation. 7. Step 3: IDENTIFY ALTERNATIVE COURSES OF ACTION i. Possible courses of action can be: a) Continue course of action b) Expand current situation c) Change current situation d) Take new course of action ii. Creativity is vital to effective choices iii. “Do nothing” can be a dangerous alternative. 8. Step 4: EVALUATE YOUR ALTERNATIVES i. Consequences of Choices a) Opportunity cost b) The cost or trade-off of a decision cannot always be measured in dollars. Sometimes the cost is your time. ii. Evaluating Risk a) Uncertainty is a part of every decision. b) Gather information from financial planning sources. 9. Types of Risk i. Inflation Risk – items get more expensive over time 2 ii. Interest Rate Risk – The value of investment goes down as interest rate goes up. iii. Income Risk – You could lose a job or get a pay-cut iv. Personal Risk – having to move for a job, etc. v. Liquidity Risk – How much money can you make off your investment 10. Step 5: CREATE AND IMPLEMENT YOUR FINANCIAL ACTION PLAN i. Develop an action plan that identifies ways to achieve financial goals ii. Possible action plans can be increasing savings, reducing spending or making provisions for taxes iii. To implement action plans you may need assistance from others 11. Step 6: REVIEW AND REVISE YOUR PLAN i. Assess decisions regularly ii. Make minor decisions weekly iii. Do an overview review monthly iv. Do a complete review annually 12. Developing Personal Financial Goals i. Consider timing ii. Set different goals for different needs iii. Be SMART a) S – Specific b) M - Measurable c) A – Action – oriented d) R – Realistic e) T – Time – Based 3 13. Influence on personal Financial Planning i. Life situation ii. Personal values iii. Global influences iv. Economic Conditions a) Consumer prices b) Consumer spending c) Interest Rates 14. Coping During Difficult T imes i. Reduce the use of debt ii. Reduce the use of spending iii. Review the safety of your savings iv. Evaluate insurance coverage v. Avoid financial scams vi. Communicate with family 15. Opportunity Costs i. Personal – (Time, Effort, Health). ii. Financial – (Interest, Liquidity, Safety). 16. Components of Personal Financial Planning a) Obtaining b) Planning c) Saving d) Borrowing e) Spending f) Managing Risk g) Investing 4 h) Retirement Planning i) Estate Planning 17. Implementing Your Financial Plan i. Short Term a) Use a budget b) Pay off Debt c) Obtain Insurance d) Establish a savings program e) Invest for retirement 18. Implementing Your Financial Plan i. Long term a) Invest for growth b) Manage taxes c) Pay off mortgage d) Plan wealth transfer Quiz Answers 1. Trade-Offs 2. True 3. False 4. Evaluate and Revise Your Actions 5. B Chapter 2: 1. Career Choice Facts a. Career selection requires planning 5 b. The average person changes jobs more than seven times over a lifetime c. Job – A position obtained to earn money d. Career- a commitment to a profession that requires continued training 2. Trade-Offs of Career Decisions a. Risks and opportunity costs b. Personal versus professional goals c. Personal, social and economic factors d. The greater the level of education, the more money you are going to make. 3. Career Training and Skill Development a. The skills gap b. Technical skills i. Skills specific to a profession ii. Often learned during college, internships, or training programs at work. 4. Career Training and Development a. General Skills i. Work well with others ii. Taking initiative to meet challenges iii. Interest in reading and continual learning iv. Cope with conflict and change v. Financial awareness vi. Problem solving ability vii. Excellent communication skills 5. Career Planning and Advancement 6 a. Assess goals and abilities b. Evaluate employment market c. Develop resume and letter d. Interview and assess performance e. Evaluate positions offered f. Address career development 6. Obtaining Employment Experience a. Campus Projects b. Internships c. Volunteer Work d. Part-time employment e. Full-time employment 7. Career Information Sources a. Library and online information b. U of A Career Center c. Networking d. References e. Company Visits 8. Networking a. Community Organizations b. Professional associations c. Informational interview d. Elevator Pitch 9. Career Advancement Tips a. Understand organizational needs b. Find mentors 7 c. Volunteer for new assignments d. Sign up for employer-sponsored training and seminars e. Attend meetings and conferences in your field f. Complete certification programs g. Take graduate level courses h. Stay alert to changes in your field i. Be up-to-date on current events j. Be actively involved in something other than work k. Change jobs when appropriate. Quiz Answers (1-2) 1. True 2. C 3. A 4. False 5. All of The Above Chapter 3 –Money Management Strategy: Financial Statements and Budgeting 1. Planning for Successful Money Management a. Make wise decisions daily b. Coordinate decisions with needs and goals c. Money management – the day-to-day activities necessary to manage current economic resources and pursue long-term financial security. 2. Opportunity Cost and Money a. Spending reduces savings potential while saving reduces amounts available for spending 8 b. Credit use ties up future income c. Using savings for purchases depletes savings d. Comparison shopping spends time but saves money 3. Money Management Components a. Storing and maintaining personal financial records and documents b. Creating personal financial statements c. Creating a plan for spending and saving – a budget 4. Financial Records Systems a. Facilitates handling financial affairs b. Promotes timely bill paying c. Provides benchmarks for success d. Records are available at tax time e. Improves financial and investment decisions f. Provides a clear record of resources available 5. Items to File at Home a. Personal and employment records b. Money management records c. Tax records d. Financial services statements e. Consumer purchase records f. Housing records g. Insurance records h. Investment records i. Estate and retirement planning records 6. Record Retention a. Keep Indefinitely 9 i. Birth, marriage and death certificates ii. Wills iii. Social Security information iv. Documents related to the purchase or sale of real estate v. Keep personal property records as long as you own the property vi. Keep tax returns indefinitely and supporting records for 6 years 7. 3 Components of Successful Planning a. Specified Values b. Explicitly stated financial goals c. Consistent financial strategies d. Balance Sheet – A financial statement that describes an individual’s or family’s financial condition at a particular time (on one day) showing assets, liabilities, and net worth. 8. Balance Sheet Components a. Assets i. Liquid (monetary) ii. Real Estate iii. Personal possessions iv. Investments b. Liabilities i. Current ii. Long-term c. Net Worth 9. Income and Expense Statement or Cash Flow Statement 10 a. A financial statement that lists and summarizes income and expens e transactions that have taken place over a specific period of time (usually a year or one month) 10. Income/Expense Statement Components a. Income b. Expenses i. Fixed ii. Variable c. Surplus or (Loss) 11. EQUATIONS: 12. Debt Ratio = Total Liabilities/Net Worth 13. Current Ratio = Liquid Assets/Current Liabilities 14. Liquidity Ratio = Liquid (Monetary) Assets/Monthly Expenses 15. Debt Payment Ratio = Monthly Non -Mortgage Debt/Take Home Pay 16. Savings Ratio = Amount Saved Monthly/Gross Monthly Income 17. The Budgeting Process a. Setting Goals b. Estimating Income c. Budgeting emergency fund and savings d. Budgeting fixed expenses e. Budgeting variable expenses f. Recording spending amounts g. Review spending and savings patterns 18. Characteristics of Successful Budgeting a. Well-planned b. Realistic 11 c. Flexible d. Clearly Communicated 19. Selecting a Budget System a. Mental Budget b. Physical Budget c. Written Budget d. Computerize Budget e. Online Budget f. Budgeting App 20. Identifying Savings Goals a. Irregular and unexpected expenses b. Replacement of expensive items c. Special Items d. Long-term expenses e. To earn income from interest 21. Savings Techniques a. Always pay yourself first through payroll deductions in to savings accounts or automatic payments from checking into savings accounts or mutual funds b. Save regularly in 401 (k) plans c. Saving coins and or spending less in certain budget categories and then making periodic deposits to savings. 12


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