PFP 3301 Chapter 1
Terms
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- the necessities, comforts, and luxuries enjoyed or desired by an individual or group
- standard of living
- the percentage of each dollar of income, on average, that a person spends for current consumption
- average propensity to consume
- the total value of all items owned by an individual, such as savings accounts, stocks, bonds, home, and automobiles
- wealth
- intangible assets, such as savings accountas and securities, that are acquired for some promised future return
- financial assets
- physical assets, such as real estate and automobiles, that can be held for either consumption or investment purposes
- tangible assets
- planning that covers the important elemnets of an individdual's financial affairs and is aimed at fulfilling his or her financial goals
- personal financial planning
- short-, intermediate-, and long-term results that an individual wants to attain, such as controlling living expenses, managing one's tax burden, establishing savings and investment programs, and meeting retirement needs
- financial goals
- the medium of exchange used as a measure of value in financial transactions
- money
- the amount of satisfaction an individual receives from purchasing certain types or quantities of goods and services
- utility
- the phase of the economic cycle during which the level of employment and growth of economic activity are both high; generally accompanied by rising prices for goods and services
- expansion
- the phase of the economic cycle during which the level of employment falls and growth of economic activity slows
- recession
- the phase of the economic cycle during which the employment level is low and economic growth is ata a virtual standstill
- depression
- the phase of the economic cycle during which the employment level is improving and the economy is experienceing increased activity and growth
- recovery
- the total of all goods and services produced by workers located within a country; used to monitor economic growth
- gross domestic product (GDP)
- a state of the economy in which the general price level is rising due to excessive demand or rapidly rising production costs; usually occurs during the recovery and expansion phases of the economic cycle
- inflation
- a measure of the cost of living and inflation based on changes in the cost of a market basket of consumer goods and services
- consumer price index (CPI)
- the amount of goods and services each dollar buys at a given point in time
- purchasing power
- 6 step financial planning process
-
1. define financial goals
2. develop financial plans and strategies to achieve goals
3. implement financial plans and strategies
4. periodically develop and implement budgets to monitor and control progress toward goals
5. use financial statements to evaluate results of plans and budgets, taking corrective action as required
6. redefine goals and revise plans and strategies as personal circumstances change - long-term goals time period
- 10 years to 80 years
- mediam-term goals time period
- bridge gap between short and long term goals; 2-10 years
- short-term goals time period
- 12 month period
- liquid assets
- cash, savings accounts, and money market funds
- investments
- stocks, bonds, and mutual funds
- personal property
- movable property, household furnishings, appliances, clothing, jewelry, home electronics, etc.
- real property
- immovable property, land and anything fixed to it, such as a house
- 6 major types of planning
-
1. asset acquisition
2. liability and insurance
3. savings and investment
4. employee benefit
5. tax
6. retirement and estate - what is a personal financial plan
- document that contains all critical areas of your personal financial life
- 3 major players in financial planning environment
- government, business, and consumers
- two principle restraints from the perspective of personal financial planning are
- taxes and government regulations
- programs fro controlling the amount of money in circulation
- monetary policy
- programs of spending and taxation
- fiscal plicy
- four stages of economic cycle
- expansion, recession, depression, and recovery