Personal_Finance_Notes-1

Personal_Finance_Notes-1 - Notes for Personal Finance Aug...

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Notes for Personal Finance Aug 31 st 2010 15 Principles of Personal Finance: 1. Risk return trade-off 2. The time value of money 3. Diversification reduces risk 4. All risk is not equal 5. The curse of competitive investment markets. 6. Taxes effect personal financial decisions 7. Stuff happens 8. Nothing happens W/O a plan 9. The best protection is knowledge 10. Protect yourself against major catastrophes 11. Time dimension of investing 12. The agency problem 13. Pay yourself first 14. Money isn’t everything 15. Just do it. Sep 2 nd 2010 -Measure your financial health-Ch2 -Time value of money-Ch2 DUE TUESDAY 9/7/19 ADVICE PROJECT AND DISCUSSION Why do we want to measure out Financial Health? 1. Create a budget 2. Begin planning process (reach goals) 3. Compare to (are we reaching our goals) 4. Measure effectiveness of investments 5. Know how much risk I can take (liquidity) 6. Learn 7. Can I meet my debts (leverage: using debt to better your situation) Measure Financial Health: 1) Know where you stand. Balance sheet: Financial snapshot of what I own/owe (point in time) o Assets: What we own o Liabilities: What we owe o Assets-Liabilities=Net Worth Income statement: Where my money comes from/goes (period of time)
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-Where my money comes from -Measure all expenses Compare income to expenses List asset in order of liquidity (how quickly can I make the asset cash) Fair market value: what you could sell them for Equity: Value of home, what you owe. Mortgages: $100,000 Original purchase amount $120,000 2 years later $95,000 Owe The difference between the value and what you owe is the equity ($25,000) The 2 nd mortgage is a loan using the equity of home as collateral Motivation Organization Tax prep Discrepancies o Health Insurance o Medical Bills Reconcile (Fraud) Helps someone come in and help in the event of death or incapacitation Time value of money: 1. Spend (Immediate need) 2. Earn interest 3. Risk Value of money is function of: 1. Time or N 2. Rate/Interest or I 3. Present Value or P.V. : Starting Value (now) 4. Payments or PMT : Adding or Subtracting from scenario 5. Future Value or F.V. a. What do we end up with b. What will it become FV = PV (1+I) n <”power” Compound interest: Earning interest on the interest How often interest will be paid to you Or How often interest will be added to loans
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Sep 7th 2010: Today: Discuss and turn in advice project Time value of money (Ch.3) Rule of 72 Rule of 72: Approximately how long it will take to double value or amount. 72/Annual interest rate assumption i.e. 72 divided by the interest which is 9% = 8, which is the number of years Sep 9th 2010:
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Today: Ch. 9 Life and Health insurance If you still need to turn in advice project, do it. Tuesday:
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This note was uploaded on 04/27/2011 for the course FIN 101 taught by Professor Daly during the Spring '11 term at Salt Lake Community College.

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Personal_Finance_Notes-1 - Notes for Personal Finance Aug...

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