5.1 Personal Finance

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5.1 Personal Finance. Economics. Economics is the study of how we make decisions when resources are limited. You must decide between what you NEED and what you WANT . Wants/Needs . Needs are things we need for survival, such as food, clothing, and shelter.
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5.1Personal Finance Economics
  • Economics is the study of how we make decisions when resources are limited.
  • You must decide between what you NEED and what you WANT.
  • Wants/Needs
  • Needsare things we need for survival, such as food, clothing, and shelter.
  • Wantsare things we would like to have.
  • Scarcity
  • The fundamental problem is scarcity.
  • When things are scarce, we do not have enough resources to produce all the things that we would like to have.
  • Because of scarcity, we must make choices among alternatives.
  • Financial planning
  • Needs generally rank higher than wants.
  • Eating is more important than buying the most expensive clothing.
  • You must plan a budget in order to have economic security.
  • A budget is a personal spending plan.
  • Instant gratification
  • Economic choices should always be based on long-term benefits and costs.
  • When people consider only short-term satisfaction, they choose based on immediate gratification.
  • Future costs may outweigh present benefits, such as when one uses credit cards irresponsibly.
  • The cost of the future debt outweighs the satisfaction of the present purchase.
  • Be Responsible with Credit Cards Delayed gratification
  • Delayed gratificationdescribes a person's ability to wait to obtain something that he or she wants.
  • This is also called is also called impulse control, willpower, and self control.
  • Many choose to buy on “Layaway”.
  • Personal spending record
  • A personal spending record keeps track of the money a person or household spends.
  • In order for this record to be accurate, you must know your exact income and be precise with actual spending.
  • Saving receipts or paying with a debit card helps to keep track.
  • Don’t spend more money than you have.
  • Cash flow
  • Cash flow is cash that comes into or goes out of a person's account.
  • Cash flow can come from any number of sources and is crucial for a person's continued survival.
  • Cash inflow may come from wages, salary, sales, loans, or even personal gifts.
  • Cash outflow usually comes from expenses and investments.
  • It is crucially important to maintain a positive net cash flow as much as possible.
  • Opportunity cost
  • Every economic choice has alternatives.
  • Opportunity costs are those things that economic choices make us give up, as a nation or individuals.
  • One a choice is made, something is sacrificed.
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