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Business and Business and Personal FinancePersonal Finance

Business and Business and Personal FinancePersonal Finance

Section 1.2

Opportunity Costs

and Financial Strategies

Chapter 1

Personal Finance Planning

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In This Section . . . Whenever you make a choice, you have to give

up some of your other options. When making financial decisions, consider both the personal and financial opportunity costs carefully. This section discusses:

Making Personal Financial Decisions Developing Personal Financial Goals Influences on Personal Financial Planning

Opportunity Costs and Opportunity Costs and Financial StrategiesFinancial Strategies 1.2

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What You’ll Learn How to determine the opportunity costs

associated with each of your financial decisions

How to identify strategies for achieving your financial goals for the different stages of your life

Opportunity Costs and Opportunity Costs and Financial StrategiesFinancial Strategies

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Why It’s ImportantBy recognizing the trade-offs of financial

decisions and learning to use your money wisely now, you’ll be able to satisfy your values and meet your financial needs and goals throughout your life.

Opportunity Costs and Opportunity Costs and Financial StrategiesFinancial Strategies

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Opportunity Cost, also known as trade-off, is what you give up when you make one choice instead of another.

Time Value of Money is the increase of an amount of money as a result of interest or dividends earned.

Financial Opportunity Costs (1 of 2)

Opportunity Costs and Opportunity Costs and Financial StrategiesFinancial Strategies

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Financial Opportunity Costs (2 of 2)

Opportunity Costs and Opportunity Costs and Financial StrategiesFinancial Strategies

Every time you spend, save, or invest money, try to think about the time value of that money as an opportunity cost. Money spent cannot be used to save and earn interest.

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Opportunity Costs and Opportunity Costs and Financial StrategiesFinancial Strategies

Go Figure . . . Annual Interest

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Opportunity Costs and Opportunity Costs and Financial StrategiesFinancial Strategies

Go Figure . . . The Future Value of a Single Deposit

1.2Future Value Tables

Future value tables simplify the process of figuring out the effect of compounding.

Opportunity Costs and Opportunity Costs and Financial StrategiesFinancial Strategies

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1.2Present Value Tables

Present value tables show the amount of money you would need to deposit now in order to attain a desired amount in the future.

Opportunity Costs and Opportunity Costs and Financial StrategiesFinancial Strategies

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How Much?

Opportunity Costs and Opportunity Costs and Financial StrategiesFinancial Strategies

Over the course of a lifetime, the average person makes and spends between $1 million and $2 million.

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Achieving Your Financial Goals (1 of 2)By using the following eight strategies, you

can plan a more successful financial future.

ObtainObtain financial resources. PlanPlan how you’ll spend your money. SpendSpend less than you earn. Save Save for long-term financial security.

Opportunity Costs and Opportunity Costs and Financial StrategiesFinancial Strategies

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BorrowBorrow wisely and only when necessary. Invest Invest to increase current income and for

long-term growth. Manage riskManage risk to protect your resources. Consider the age at which you hope to retireretire

when planning your future.

Achieving Your Financial Goals (1 of 2)

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Savvy Saver Financial Tips That Work

Opportunity Costs and Opportunity Costs and Financial StrategiesFinancial Strategies

Which of these tips do you think will be most useful to you? Why?

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Check Your Understanding

1) What are the opportunity costs associated with financial decisions?

2) Name the eight strategies you can apply to achieve your financial goals.

3) How can investing your money help you achieve your financial goals?

Opportunity Costs and Opportunity Costs and Financial StrategiesFinancial Strategies 1.2

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Think Critically

Opportunity Costs and Opportunity Costs and Financial StrategiesFinancial Strategies

Use the concept of time value of money, write an argument in favor of shopping for a good interest rate.

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End of Section 1.2

Opportunity Costs and Opportunity Costs and Financial StrategiesFinancial Strategies 1.2