Chapter 10 Study Guide Personal Financial Planning

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economy
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the ways in which nations make decisions to allocate their resources
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goods
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physical items that is produced and can be weighed and measured
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inflation
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rise in the level of prices for goods and services over time
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liquidity
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the ability to easily convert financial assets into cash without loss of money
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personal financial planning
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arranging to spend, save, and invest money to live comfortably, have financial security, and achieve goals
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values
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the beliefs and principles you consider important, correct, and desirable
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consumable
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something that can be used up by consumers
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intangible
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assets that are saleable though not material or physical
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durable
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serviceable for a long time
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economics
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the study of the decisions that go into making, distributing, and using goals and services
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services
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a task that a person or machine performs for you
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goals
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the things one wants to accomplish
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opportunity costs
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what is given up when making one choice instead of another
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present value
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the amount of money one would need to deposit now in order to have a desired amount in the future
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future value
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the amount an original deposit will be worth in the future based on earning a specific interest rate over a specific period of time
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time value of money
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the increase of an amount of money due to earned interest or dividends
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consumer
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a person who purchases and uses goods or services
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annuity
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a series of equal regular deposits
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interest
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the price that is paid for the use of another’s money
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principal
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the original amount of money on deposit
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What economic factors and conditions might influence a person’s financial planning?
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1. life situations 2. personal values 3. economic factors
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What are the six steps of financial planning?
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1. determine current financial situation 2. develop financial goals 3. identify alternative courses of action 4. evaluate alternatives 5. create and use financial plan of action 6. review and revise plan
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What are the 4 parameters of a financial goal?
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1. realistic 2. specific 3. set within clear time frame 4. helps one decide what type of action to be taken
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What are the consequences of financial decisions?
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1. personal opportunity costs 2. financial opportunity costs

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