Analyze the process for making personal financial decisions.
Personal financial planning involves the following process: (1) determine your current financial situation; (2) develop financial goals; (3) identify alternative courses of action; (4) evaluate alternatives; (5) create and implement a financial action plan; and (6) re-evaluate and revise the financial plan.
Develop personal financial goals.
Financial goals should (1) be realistic; (2) be stated in specific, measurable terms; (3) have a time frame; and (4) indicate the type of action to be taken. They are affected by a persons values, attitude toward money, and life situation.
Assess economic factors that influence personal financial planning.
Financial decisions are affected by economic factors such as consumer prices, interest rates, and employment opportunities.
Determine personal and financial opportunity costs associated with personal financial decisions.
Every decision involves a trade-off with things given up. Personal opportunity costs include time, effort, and health. Financial opportunity costs are based on the time value of money. Future value and present value calculations enable you to measure the increased value (or lost interest) that results from a saving, investing, borrowing, or purchasing decision.
Identify strategies for achieving personal financial goals for different life situations.
Successful financial planning requires specific goals combined with spending, saving, investing, and borrowing strategies based on your personal situation and various social and economic factors.