MCS 2100 chapter notes.docx

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University of Guelph
Marketing and Consumer Studies
MCS 2100
Jian Zhao

Ch1. Personal financial planning- the process of managing your $ to achieve personal economic satisfaction. The Financial Planning Process Exhibit 1-1 1.) Determine current financial situation- income, savings, living expenses and debts. Current assets and debts 2.) Develop financial goals- analyzing values involves identifying what beliefs you hold with respect to money and how these beliefs lead you to act in certain ways. 3.) Identify alternative courses of action- Continue course of action; keep saving same amount, expand save more, change- use money market versus savings account, take new course of action- using savings to pay off debt. 4.) Evaluate alternatives (Consider- life situation, economic factors and Asses- risk, time value of $) 5.) Create and implement a financial action plan 6.) Re-evaluate and revise the financial plan Opportunity Cost- what a person gives up by making a choice Time Value of Money- increases in an amount of money as a result of interest earned. Saving or investing a dollar today instead of spending it results in a future amount greater than a dollar. Short Term Goals- achieved within a year. Intermediate goals- 2-5 yrs Long Term Goals- 5+ yrs paying down a mortgage Consumable Product Goals - occur on a periodic and involve items that are used up relatively quickly, eg food. Durable Product Goals - usually involve infrequent purchases, expensive items such as cars and appliances. Intangible Purchase Goals- may relate to personal relationships, health, education, and leisure. Adult life cycle - the stages in the family situation and financial needs of an adult Life Cycle Approach- the idea that the average person goes through 4 basic stages in personal financial management. Early years (mid 30s) creating emergency fund, down payment for house, think about retirement, (mid 30s-50s) building wealth paying down mortgage, 50+ building up retirement fund, and retirement adequate management of funds. Financial Goals 1. Realistic- based on income and life situation. 2. Stated in specific, and measurable terms eg; accumulating a $5000 investment fund in 3 yrs. 3. Time frame- above 3 yrs 4. Indicate the type of action that needs to be taken. Economics- the study of how wealth is created and distributed. Inflation- is a rise in the general level of prices. Interest Rates- represents cost of money. Simple Interest- interest compounded on the principle, excluding previously earned interest. I= P x R x T Compounding- A process that calculates interest based on previously earned interest. (P) x 1+R^T Future Value- the amount to which current savings will increase based on certain interest rate and a certain time period; typically involves compounding. Annuity- a series of equal deposits or payments Present Value- the current value for a future amount based on a certain interest rate and a certain time period…aka discounting Financial plan- is a formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities. Ch. 2 Money Management- Day-today financial activities necessary to manage current personal economic resources while working toward long-term financial security. Three major money management activities: 1) Storing and maintaining personal financial records and documents 2) Creating personal financial statements (balance sheets and cash flow statements of income and outflows) 3) Creating and implementing a plan for spending and saving (budgeting) Personal balance she
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