FINA1109 Lecture Notes - Lecture 1: Financial Plan, Opportunity Cost, Sensitivity Analysis
Tuesday, 1 August 2017
LECTURE 1
THE PERSONAL FINANCIAL PLANNING PROCESS
-Personal financial decision making
•3 key concepts
-Personal financial planning
•Process of meeting your life goals through the proper management of your finances
-Personal financial planning process
•1. Analyse your current finances
•2. Develop goals
•3. Identify and evaluate strategises to achieve your goals
•4. Establish and implement your plan
•5. Revaluate and revise your plan as needed
-Personal financial plan
•Four components
-Establish foundation
-Secure basic needs
-Build wealth
-Protect finances
-Financial planning involves making effective decisions (about the future)
•Key principles
-Use reasonable assumptions
•Outliers matter
-Apply marginal reasoning
•What changes because of your decision?
•What changes ‘at the margin’?
-Consider opportunity costs
•What are you missing out on?
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Document Summary
Personal nancial decision making: 3 key concepts. Personal nancial planning: process of meeting your life goals through the proper management of your nances. Identify and evaluate strategises to achieve your goals: 4. Financial planning involves making effective decisions (about the future: key principles. Personal nancial planning: stage 1: initial assessment of nances. Establish two key indicators when assessing your nances: financial position/net worth (personal balance sheet) Assets and liabilities (what you own and what you owe: net worth is the difference: Negative assets < liabilities: financial performance (personal cash flow statement/statement of nancial performance) Human capital: human capital is your biggest asset (ability to earn and save) Over time human capital reduces, but nancial capital increases (converted) Affects all of your cumulative cash ow statements. Time value of money: consider an investment"s cash ows. Cost = today, bene t = in one year.
