HeCol321

the process of managing your money to achieve personal economic satisfaction (resources, control, relationships, freedom)

• 1. Determine current financial situation (current asset and debt balances)
• 2. Develop financial goals (values, attitudes to money)
• 3. Identify alternative course of action
• 4. Evaluate alternatives (consider life situation, personal values, current economic situation, opportunity costs of money and time, risks)
• 5. Create and implement financial plan
• 6. Reevaluate and revise your plan (review regularly)

• 1. Interest rate risk
• 2. Inflation risk -rising prices --> decreased buying power
• 3. Liquidity risk -difficult to convert to cash without significant loss in value
• 4. Product risk
• 5. Risk of death
• 6. Risk of lost income
• 7. Health risk
• 8. Asset and liability risk

• 1. personal values and attitudes toward money
• 2. time frame
• 3. financial need
• 4. life situation (the life cycle approach)

• 1. Early years (til mid 30s)
• -emergeny fund, down payment on house or condo, purcahsing life insurance, retirement
• 2. Middle years (mid 30s to 50s)
• -building wealth
• -pay down mortgage, increase savings and investments
• 3. Middle Years (50+)
• -retirement fund
• 4. Retirement years
• -efficient management of previously acquired wealth

• 1. realistic
• 2. specific and measurable
• 3. have a time frame
• 4. identify required action

the study of how wealth is created and distributed

• 1. market forces--supply and demand, production costs and competition
• 2. Consumer prices--value of the dollar, inflation, increase in demand
• 3. Interest rates--cost of money and credit, the return on money when saved or invested
• 4. Money supply--dollars available for spending in economy

• increase in amount of money due to interest earned
• -considered as an opportunity cost

• amt now compounds to future value
• present value discounts from amount later

interest compounded on the principal, excluding previously earned interest

interest earned upon previously earned interest