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Copyright © 2018 McGraw-Hill Education Ltd. All Rights Reserved.
Instructor’s Manual for Kapoor et al. Personal Finance 7CE.
VII. Appendix 1B: The Time Value of Money: Future Value and Present Value Computations.
CHAPTER 1 LECTURE OUTLINE Instructional Suggestions
THE FINANCIAL PLANNING PROCESS
• Personal financial planning is the process of
managing your money to achieve personal economic
satisfaction.
Step 1. Determine Your Current Financial Situation
• Determine your current financial situation with
regard to income, savings, living expenses, and debts.
Step 2. Develop Financial Goals
• Analyze your financial values and goals to set a
course for action.
• Discussion Question: Why
do some decisions require more
time and effort than others?
Step 3. Identify Alternative Courses of Action
• Various alternatives associated with financial
decision making are usually based on deciding to:
Continue the same course of action; for example,
you may determine that the amount saved each
month is still appropriate.
Expand the current situation; you may choose to
save a greater amount each month.
Change the current situation; you may decide to
buy Canadian savings bonds instead of using a
regular savings account.
Take a new course of action; you conclude to use
your monthly saving budget to pay off credit card
debts.
• Creativity in decision making is vital to making
effective choices. The more alternatives that are
considered, the more likely a person or household will
make wise financial choices.
• Class Exercise: Select a
situation (such as obtaining
funds to start a business or
getting work-related experience
without a job) and have students
create a list of alternatives for
this problem.
Step 4. Evaluate Alternatives
• Every decision closes off alternatives. The
opportunity cost is what a person gives up by making
a choice. This cost, commonly referred to as the
trade-off of a decision, sometimes cannot always be
measured in dollars.
• Decision making will be an ongoing part of your
personal and financial existence. Thus, you will need
to consider the lost opportunities that result from your
decisions.
• Text Highlight: Exhibit 1-
2 provides information on four
types of risks faced in many
financial decisions.
• Text Reference: The
Appendix provides expanded
discussion of financial planning
information sources and using a
financial planner.
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Copyright © 2018 McGraw-Hill Education Ltd. All Rights Reserved.
Instructor’s Manual for Kapoor et al. Personal Finance 7CE.
• Uncertainty is a par of every decision. In many
financial decisions, identifying and evaluating risk is a
difficult task. The best way to consider risk in such
decisions is to gather information based on your
experiences and those of others and refer to the
research of financial planning sources.
• Relevant information is required at each stage of
the financial planning process.
Step 5. Create and Implement A Financial Action Plan
• Develop a plan of action to achieve your goals.
Step 6. Re-evaluate and Revise Your Plan
• Decision making is a circular, ongoing process in
which current decisions influence future choices.
DEVELOPING PERSONAL FINANCIAL GOALS
• Many Canadians have money problems due to:
poor planning
weak financial habits
extensive numbers of marketplace influences in
the form of advertising, selling efforts, and
product availability.
Types of Financial Goals
• Short-term goals are those to be achieved within
the next year or so, such as saving for an annual
vacation or paying off small debts.
• Intermediate goals have a time frame of two to
five years.
• Long-term goals involve financial plans that may
be more than five years off, such as retirement and
college savings.
• Consumable-product goals usually occur on a
periodic basis involving items used up relatively
quickly, such as food, clothing, or entertainment
spending.
• Durable-product goals usually involve infrequent,
expensive items, such as appliances, motor vehicles,
and sporting equipment. Most durable goals consist of
tangible items.
• In contrast, however, many people overlook
intangible goals. These goals may relate to personal