Unit 1: Personal Finance OverviewSection 1.2 - Managing Your Personal Finances

Objectives

● Discuss the various factors that influence financial decisions

● Apply management principles to achieve your important goals

Case Study: Managing Decisions

Directions: With one other student, complete the following….

1. Create a Google Doc and include both of your names at the top2. Number and answer each of the 4 questions listed after reading the

scenario3. Discuss and provide appropriate responses to each4. Note: the grade given on this assignment will apply to both individuals

Scenario ->1. What is the trade-off if

Maurice decides to keep

his job?

2. What is the cost-benefit

analysis if he decides in

favor the play?

3. What other alternatives

might Maurice have?

4. How would you resolve

Maurice’s goal conflict if

this were your decision?

Maurice wants the male lead in the school play. The problem is that rehearsal is held for two hours every weekday afternoon for the next three months. If he gets the lead, he must quit his after-school job at the mall. If he quits now, the manager probably would not hire him for full-time summer work. Maurice desperately needs the income to help his family pay medical bills.

Since he is a senior, this is Maurice’s last chance to be in a high school production. The best actors in the spring play are sometimes chosen for Summer Theater. This often leads to a career in drama, which Maurice has always wanted.

Making Financial Decisions

● Out of habit○ Do you automatically shop at the

same stores?

● On impulse○ Did you ever accept an invitation

to do something and then discover

you had already promised to do

something else at the same time?

● By failing to act○ Have you earned a poor grade by

not studying for an exam?

Cost-Benefit AnalysisDefinition - a method of weighing the costs against the benefits of an action, a purchase, or a financial decision

● If it is in your interest to take an action or make a purchase, the benefits are greater than or equal to the cost(s)

Marginal AnalysisDefinition - measures the added benefit, versus the added cost, of one more unit of a product

● Marginal Benefit - the change in total benefit of use one additional unit

● Marginal Cost - the change in total cost of using one more unit

Example: “Hungry Apple”

Trade-Offs and Opportunity Costs

Trade-Offs - the choice you give up when you make one choice over another.

❏ Example: ❏ When you spend $50 to buy a jacket❏ Trade-off = what else could you have use

the $50 for?

Opportunity Costs - the value of the option you gave up

❏ Can be measured in:❏ Dollars❏ Time ❏ Enjoyment

Systematic Decision-Making

Definition - a process of choosing a course of action after evaluating available information and weighing the costs and benefits of alternative actions and their consequences

Step Keyword Approach

1 Problem Define the problem or challenge

2 Alternative Explore alternatives

3 Choose Choose the best alternatives

4 Act Act on the decision

5 Evaluate Evaluate the decision

Managing Resources to Reach Goals

1. Planning

2. Action

3. Evaluation

PlanningThe planning phase of management involves identifying GOALS, OBSTACLES, and RESOURCES

1. What goals do you want to have or achieve?

2. What obstacles stand between you and your goals? What must you overcome?

3. What resources can you use to overcome the obstacles and reach your goals?

ActionThe action phase involves putting your resources to work to overcome the obstacles that stand between you and your goals

1. Determination

2. Flexibility

EvaluationThe evaluation phase is continuous where you assess your progress as you go through all stages of the management process

1. What worked?

2. What did not?

3. How could you make it better next time?

Checkpoint 1.2

Directions: Create a new Google Doc in your class folder labeled as...

“today’s date Checkpoint 1.2”

1. What are some of the unplanned

ways people make decisions?

2. Explain the first step in systemic

decision-making.

3. What does the planning phase of

management include?

4. What two characteristics are key in

reaching your goals?