Steps For Financial Decisions
Vocabulary
• Inventory
• Income
• Expenses
• Debt
• Savings
• Estimate
• Need
• Want
Six Steps for Financial Decisions
• Determine Your Current Financial Situation
• Develop Your Financial Goals
• Identify Alternative Courses of Action
• Evaluate Your Alternatives
• Create and Use Your Financial Plan of Action
• Review and Revise Your Plan
1. Determine Your Current Financial Situation
• Take an inventory of your finances
• Inventory: a complete list of items such as property, goods in stock, or the
contents of a building.
a. Determine your monthly income
• Income: money received, especially on a regular basis, for work or through investments.
b. Determine your monthly expenses
• Expenses: the cost required for something; the money spent on something.
•Take an inventory of your finances (cont.)
c. Determine your total debt
• something, typically money, that is owed or due.
d. Determine your total saving
• an economy of or reduction in money, time, or another resource.
• the money one has saved, especially through a bank or official scheme.
•Take an inventory of your finances (cont.)
• One needs to estimate their inventory
• Estimate: an approximate calculation or judgment of the value, number,
quantity, or extent of something.
• How do you do that?
• Look at past values and calculate based on them and changes
2. Develop Your Financial Goals
• How do your values about finances affect your goals?
• Determine what you need verses what you want.
• Need
• Something that is critically essential.
• Want
• Something that you desire or wish for.
• You might need to prioritize your goals
Vocabulary
• Risk
3. Identify Alternative Courses of Action
Make a list of options to obtain a financial goal
• Get ideas from other sources such as friends, bankers, “older
people”
• May want to increase/decrease savings
• May want to lower the goal to make it more attainable
• May want to sacrifice another goal to reach this one
• May want to find another way that has the same effect (truck
vs. trailer)
4. Evaluate Your Alternatives
• Use the Internet, financial institutions, magazines,
specialists, and parents
• Realize you will only be able to choose one plan – others
need to be shelved
• Calculate the Risks
Risk – a chance of loss or possible gain, daring choices
• Inflation Risk
• The price of an item may be higher next year, or the item is on sale only for a short
time.
• Interest Rate Risk
• Interest varies based upon the economy. Rates may be higher/lower in the future
• Income Risk
• Will your job be there in the future: health/accident/closings/job changes
• Personal Risk
• Does your job place you in a high risk category?
• Is public transportation better than personal transportation
• Is your job stressful/hated/loved
• Liquidity Risk
• Can you convert your assets into cash to pay off debt?
• How fast can you convert your assets into cash?
5. Create and Use Your Financial Plan of Action
• Implement your plan and stick to it
6. Review and Revise Your Plan
• Remember that situations come up that you were not
expecting
• With unforeseen changes happening, are you going to
keep the same plan or modify it?
• If you get married will you keep the same plan?