BME 101

• Well-being


  The state of being happy, healthy, and prosperous
• Domains of well-being


  • Physical well-being
  • Intellectual well-being
  • Emotional well-being
  • Social well-being
  • Financial well-being
• Physical well-being


  Having a strong and healthy body
• Intellectual well-being


  Having a strong and healthy mind
• Emotional well-being


  Having positive feelings
• Social well-being


  Having interaction with other people
• Financial well-being


  Having a sense of security that you have the ability to cover all your financial needs
• We need to manage our money in ways that build a sense of understanding, competence and control
• Money


  An economic unit that functions as a generally recognized medium of exchange for transactional purposes in an economy
• Money is produced by the government and it comes in two (2) forms: bills or coins</b>
• Money is being used to purchase commodities or to simply put, to execute a trade transaction
• Money also determines the wealth of a country and its describes the amount of power and control the country has over other countries
• An economy is technically affected by how the constituents use their money
• Personal finance


  The art and science of managing money on an individual level
• Personal financial planning


  The process of planning every aspect of your personal finances in order to achieve the highest quality of life possible
• Personal financial planning


  1. Assess your financial situation

  2. Create a budget

  3. Set your financial goals

  4. Know your risk tolerance

  5. Work out and implement a basic financial plan

  6. Regularly review and adjust your financial plan
• Need for personal financial planning


  • Satisfy today's financial needs
  • Meet future financial goals
  • Provide protection for you and your family
  • Plan for your retirement
  • Save for emergencies
• Benefits of good financial decision making


  • Helps you control your budget
  • Helps you set your financial target
  • Settle unforeseen expenses
  • Improves financial health
• Things to plan for financially


  • Education
  • Emergency funds
  • Buying a car
  • Buying a home
  • Having a family
  • Retirement
  • Charitable giving
• Financial plan


  The strategy used in achieving one's financial goals and objectives
• Components of a financial plan

  • Tools for financial planning
  • Managing liquidity
  • A plan for financing
• Personal financial statements


  Tools for financial planning
• Time value of money

  Tools for financial planning
• Future value


  The value of an asset or cash at a future date
• Present value


  The amount that a future sum of money is worth today
• Calculating future value of a lump sum

  1. Identify given information

  2. Substitute into formula

  3. Calculate future value
• Annuity


  A series of equal payments made at regular intervals
• Calculating future value of an ordinary annuity

  1. Compound individual cash flows

  2. Add them up
• Calculating present value of an annuity

  1. Discount individual cash flows

  2. Add them up
• Liquidity


  Access to funds to cover any short-term cash deficiencies
• Money management


  Decisions regarding how much money to retain in a liquid form and how to allocate the funds among short-term investment instruments
• Credit management


  Decisions regarding how much credit to obtain to support your spending and which sources of credit to use
• Credit


  Funds provided by a creditor to a borrower that will be repaid by the borrower in the future with interest
• Advantages of using credit

  • Ability to purchase when price exceeds available cash
  • Convenience
• Disadvantages of using credit

  • Difficulty making payments
  • Temptation for impulse purchases
  • Hinders ability to save
  • Expensive
• Credit payments

  Impact on savings
• Loans


  Often needed for large expenditures like college tuition, car, house
• Loan management


  How much can you afford to borrow, determining maturity, selecting a loan with a competitive interest rate
• Loan contract


  A contract that specifies the terms of a loan, as agreed to by the borrower and the lender
• Amortize


  To repay the principal of a loan through a series of equal payments