financial decision making essay

• Entertainment
• Environment
• Information Science and Technology
• Social Issues

Home Essay Samples Life Goals

My Personal Financial Goals in Life: Financial Freedom

Table of contents, building a strong financial foundation, investing in long-term growth, embracing financial education and literacy, promoting generational wealth and giving back, conclusion: the roadmap to financial fulfillment.

• Gutter, M. S., Garrison, S., & Copur, Z. (2010). Emergency savings: The household financial safety net. Journal of Family and Economic Issues , 31(3), 377-388.
• Bengen, W. P. (1994). Determining withdrawal rates using historical data. Journal of Financial Planning , 7(4), 171-180.
• Lusardi, A., & Mitchell, O. S. (2014). The economic importance of financial literacy: Theory and evidence. Journal of Economic Literature , 52(1), 5-44.

*minimum deadline

Cite this Essay

To export a reference to this article please select a referencing style below

• Professionalism
• Self Reliance

Need writing help?

You can always rely on us no matter what type of paper you need

*No hidden charges

100% Unique Essays

Absolutely Confidential

Money Back Guarantee

By clicking “Send Essay”, you agree to our Terms of service and Privacy statement. We will occasionally send you account related emails

You can also get a UNIQUE essay on this or any other topic

Thank you! We’ll contact you as soon as possible.

Financial Decision Making

Introduction.

The financial scandals occurring in the late 1990s and early 2000s clearly show that the accuracy of financial statements and information of the company is an issue that cannot be overlooked. In that regard, the decision of relying on the financial information provided from within the company by their own employees or relying on an external firm to handle such task can be of vital importance, also given that the difference might imply differences in costs as well as the company’s reputation. In that regard, this paper is addressed toward providing a brief overview of the differences between the internal audit, which is handled by the same company, and the independent audit, handled by a different firm, stating that the first cannot be sufficient, even if the internal audit followed ethical guidelines. An external audit can guarantee the accuracy, and based on the examples of the financial scandals, and the Sarbanes-Oxley Act, the independence of external audit is emphasized.

Audit’s initial purpose is separating the interests of those who are directly handling the management of the company and those who invest money in the company, i.e. owners, investors, or stakeholders. Regardless of whether the audit is internal or external, the term independent is obligatory in both types, with the difference being in that internal audit is integral to the organization, with auditors being employed by the company, while the external audit is independent of the organization, being an independent accounting firm.

Internal audit can be defined as “an independent and objective assurance activity designed to add value and improve the organization’s operations” (FHFB Office of Supervision, 2007). An internal audit provides assistance to the management of the company, while being independent of its operations, by “bringing a systemic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes by providing objective analysis and constructive recommendations” (FHFB Office of Supervision, 2007).

External auditors, on the other hand, are “independent of the organization, and provide an annual opinion on the financial statements” (IIA, 2009). External auditors’ primary concern is the internal control structure related to the financial statement of the company, its fair representation of the company’s position, and the compliance of the records with the Generally Accepted Accounting Principles (GAAP).

The main differences can be seen in the different relations to the organization, i.e. reporting to the management or the board of directors. In that regard, it can be stated that the specifics of external audit implies occasional control in specific periods, i.e. annual, quarterly, etc, while the internal audit, performed by auditors employed in the organization, maintains constant control. In that regard, the ethical conduct is a primary part of both, and as external audit might not provide a guarantee, based on the example of public accounting firms, which abrogated [the] responsibility [of proving independent audits] for consulting contracts”, their main purpose can be seen in examining the statement originally released by internal audit.

In that regard, it can be seen that Sarbanes-Oxley Act, released after the Enron scandal, puts an emphasis on the independence factor, indicating “whether it agrees with management’s evaluation of its internal control” (Brigham, 2009, p. 17). Thus, it can be seen that the latter implies that both should follow ethical guidelines, with greater responsibility put on internal control that should be examined and checked by an external audit.

It can be seen that having a different firm handling an audit is a greater guarantee of the independence of opinion, and confirmation of the correctness of the internal control. Both external and internal audits can be seen as mutually exclusive, specifically given the different tasks and purposes they pursue.

Brigham, E. F. (2009). Intermediate financial management (10th Ed. ed.). Eagan, MN: Cengage South-Western.

FHFB Office of Supervision (2007). External and Internal Audit. Federal Housing Finance Agency . Web.

IIA (2009). How do internal and external auditors differ and how should they relate? The Institute of Internal Auditors . Web.

Cite this paper

• Chicago (N-B)
• Chicago (A-D)

StudyCorgi. (2022, February 22). Financial Decision Making. https://studycorgi.com/financial-decision-making/

"Financial Decision Making." StudyCorgi , 22 Feb. 2022, studycorgi.com/financial-decision-making/.

StudyCorgi . (2022) 'Financial Decision Making'. 22 February.

1. StudyCorgi . "Financial Decision Making." February 22, 2022. https://studycorgi.com/financial-decision-making/.

Bibliography

StudyCorgi . "Financial Decision Making." February 22, 2022. https://studycorgi.com/financial-decision-making/.

StudyCorgi . 2022. "Financial Decision Making." February 22, 2022. https://studycorgi.com/financial-decision-making/.

This paper, “Financial Decision Making”, was written and voluntary submitted to our free essay database by a straight-A student. Please ensure you properly reference the paper if you're using it to write your assignment.

Before publication, the StudyCorgi editorial team proofread and checked the paper to make sure it meets the highest standards in terms of grammar, punctuation, style, fact accuracy, copyright issues, and inclusive language. Last updated: May 1, 2022 .

If you are the author of this paper and no longer wish to have it published on StudyCorgi, request the removal . Please use the “ Donate your paper ” form to submit an essay.

• Kreyòl Ayisyen

Financial knowledge and decision-making skills

Financial knowledge and decision-making skills help people make informed financial decisions through problem-solving, critical thinking, and an understanding of key financial facts and concepts.

Building financial knowledge and decision-making skills

How do we learn to make good financial choices? Learn more about the financial knowledge and decision-making skills building block and how it can help young people make the right decisions for their situation.

Importance of financial knowledge and decision-making skills

Strong financial knowledge and decision-making skills help people weigh options and make informed choices for their financial situations, such as deciding how and when to save and spend, comparing costs before a big purchase, and planning for retirement or other long-term savings.

Development of this building block

Financial knowledge and decision-making skills typically don’t develop until adolescence and young adulthood. During these years, they become more relevant, especially for youth who start to earn money, buy things on their own, manage a bank account, or borrow for education.

The tables that follow show what this building block looks like at three stages of development and how the skills and abilities relate to adult behavior associated with financial well-being.

Early childhood (ages 3–5)

Middle childhood (ages 6–12)

Adolescence and early adulthood (ages 13–21)

Teaching this building block

Schools can provide opportunities for youth to practice financial behaviors, make financial decisions, and reflect on the outcomes and consequences of those decisions. Across the curriculum, teachers can provide opportunities for students to learn how to find and recognize reliable financial information, compare financial products, and do purposeful financial research in order to analyze options and make decisions.

Instructional strategies

Research shows that the following strategies can be effective to help people develop financial knowledge and decision-making skills.

• Competency-based learning: Student-centered learning that encourages students to progress toward well-defined benchmarks to give them a sense of mastery and ownership over the skills and knowledge they are learning
• Direct instruction: A structured, straightforward, teacher-directed approach that focuses on an explicit skill and typically includes a lecture, demonstration, or discussion
• Personalized instruction: Teacher assesses each student’s needs, then tailors instruction to the individual student, including focusing and differentiating resources, strategies, supports, and pacing on that student’s needs to individualize learning
• Project-based learning: A hands-on strategy in which students actively explore real-world challenges, answer meaningful questions, and accomplish relevant tasks and, in doing so, are encouraged to make their own decisions, perform their own research, overcome obstacles, and present their work to others
• Simulation: Hands-on learning activities that use real-world scenarios to promote critical thinking and application of learning

Learning activities

Learning activities that nurture financial knowledge and decision making should support young people’s acquisition of factual knowledge, research and analysis skills, and deliberate financial decision-making. The types of activities that support these skills include the following.

• Financial coaching and mentoring: Adults engage and encourage students (individually and in small groups) to develop financial capability and work toward financial goals
• Financial simulations: Educational tools or activities that replicate real-world financial management situations and allow students to develop skills such as budgeting, comparison shopping, and investing by making mock decisions that result in realistic consequences
• Real-world case studies: Stories that present realistic situations involving a dilemma, conflict, or problem to be negotiated or resolved by analyzing and evaluating a range of information and weighing the consequences of different decisions

Resources for teaching financial knowledge and decision-making skills

• Search for classroom activities to nurture the development of financial knowledge and decision-making skills
• Explore all strategies and learning activities for nurturing the building blocks

• Business Essentials
• Leadership & Management
• Credential of Leadership, Impact, and Management in Business (CLIMB)
• Entrepreneurship & Innovation
• Digital Transformation
• Finance & Accounting
• Business in Society
• For Organizations
• Support Portal
• Media Coverage
• Founding Donors
• Leadership Team

• Harvard Business School →
• HBS Online →
• Business Insights →

Business Insights

Harvard Business School Online's Business Insights Blog provides the career insights you need to achieve your goals and gain confidence in your business skills.

• Career Development
• Communication
• Decision-Making
• Earning Your MBA
• Negotiation
• News & Events
• Productivity
• Staff Spotlight
• Student Profiles
• Work-Life Balance
• AI Essentials for Business
• Alternative Investments
• Business Analytics
• Business Strategy
• Business and Climate Change
• Design Thinking and Innovation
• Digital Marketing Strategy
• Disruptive Strategy
• Economics for Managers
• Entrepreneurship Essentials
• Financial Accounting
• Global Business
• Launching Tech Ventures
• Leadership Principles
• Leadership, Ethics, and Corporate Accountability
• Leading Change and Organizational Renewal
• Leading with Finance
• Management Essentials
• Negotiation Mastery
• Organizational Leadership
• Power and Influence for Positive Impact
• Strategy Execution
• Sustainable Business Strategy
• Sustainable Investing
• Winning with Digital Platforms

5 Ways Managers Can Use Finance to Make Better Decisions

• 02 Jun 2020

Decision-making is an essential management skill that can both drive and impede financial performance. According to research by management consulting firm McKinsey, organizations with fast and efficient decision-making processes are twice as likely to report financial returns of at least 20 percent as a result of recent decisions.

McKinsey’s research also shows that inefficient decision-making can lead to more than 530,000 days of lost working time and $250 million of wasted labor costs per year.

To help position your organization for success and avoid these pitfalls, it’s critical to develop your financial literacy and knowledge to understand and overcome business challenges.

Here are five ways you can use finance to improve your decision-making and become a better manager .

Access your free e-book today.

Strategies to Make Better Financial Decisions

1. perform financial statement analysis.

Financial statements are among the most important resources at your disposal when it comes to decision-making. You should not only know how to read them, but interpret and analyze the data they present.

Understanding the numbers on your organization’s balance sheet can indicate its current financial position, and show whether it’s on a trajectory for success or failure. By examining its cash flow statement , you can gain insight into how cash is being generated and used. Through reviewing its income statement , you can gauge how your business is doing in relation to its expected performance.

When viewed in the context of an annual report, these statements can reveal valuable information about your company, such as its profits and losses year over year and the factors that have contributed to—or hindered—its growth.

Equipped with this information, you can make more informed decisions about how to allocate your company’s resources and work toward its goals.

Related: Balance Sheets 101: What Goes on a Balance Sheet?

2. Estimate the Financial Impact of Projects and Initiatives

To effectively manage your team and department, you need to decide which projects and initiatives are worth pursuing—and which are not.

Calculating the anticipated return on investment (ROI) of a project can help support your pitch with numbers and show how much profit it’s likely to generate and the resources needed to make it a success.

The ROI of completed initiatives can also reveal critical details about how your organization allocated funds and accomplished tasks, providing valuable lessons you can apply to future endeavors.

Conducting a cost-benefit analysis is another way you can use finance to make better decisions. This method of data-driven decision-making provides a framework for performing an evidence-based evaluation of an initiative, allowing you to assess how its projected benefits compare to its costs. With this approach, you can break down complex business decisions and elect to pursue projects expected to yield the best outcomes.

3. Learn How to Budget

Budgeting is a basic finance skill all managers and decision-makers should have. At its core, your team’s budget is a vital tool that ensures your organization has the resources necessary to reach its goals.

By breaking down your team’s work into a detailed set of deliverables during the budgeting process, you can track your spending against estimated expenses and, when necessary, pivot your project management strategy to ensure tasks are completed on time and on budget.

Knowing how to manage a budget can also allow you to better communicate progress and performance to stakeholders within your organization, which can inform how company-wide initiatives are planned and executed.

4. Involve Your Team in Decision-Making

Soliciting and considering a range of alternatives is an essential step in the decision-making process . By involving your team in important business decisions, you can facilitate an in-depth evaluation of the issues at hand and stimulate more creative problem-solving. According to research by software company Cloverpop, teams make better decisions than individuals 66 percent of the time.

When addressing a financial decision, you can lean on your team members’ expertise to answer key questions and chart a path forward. One of your employees may be more versed in financial terminology , while another may have a greater understanding of the difference between GAAP and IFRS accounting standards.

By soliciting input from your colleagues and encouraging discussion and debate, you can fill in your knowledge gaps and formulate an array of potential solutions to business problems.

Related: 5 Key Decision-Making Techniques for Managers

5. Track Financial Performance

Knowledge of your organization’s past and present financial performance is crucial to sound decision-making. Monitoring financial KPIs , or key performance indicators, such as gross profit margin, working capital, and return on equity can equip you with an understanding of your company’s financial health and your team’s contributions to its strategic objectives.

Metrics like cash flow and profit are also useful for tracking how your firm is managing money and growing, which can inform how you decide to appropriate people and resources to pursue its goals.

Improving Your Financial Decision-Making

Bolstering your decision-making with an intuitive understanding of finance can equip you to thrive in your role and boost the performance of your team and organization.

Even if you don’t have a background in finance, learning financial principles and concepts can go a long way in helping you improve your management skills and excel professionally .

Do you want to develop a financial intuition that will give you the confidence to make better decisions in your career and life? Explore our six-week online course Leading with Finance and other finance and accounting courses , and download our free course flowchart to determine which best aligns with your goals.

About the Author

• Search Search Please fill out this field.

What Is Personal Finance?

The importance of personal finance, areas of personal finance, personal finance services, personal finance strategies, personal finance skills, personal finance education.

• What Classes Can't Teach

Breaking Personal Finance Rules

Frequently asked questions, the bottom line.

• Personal Finance

What Is Personal Finance, and Why Is It Important?

Investopedia / Sydney Saporito

Personal finance is a term that covers managing your money as well as saving and investing. It encompasses budgeting, banking, insurance, mortgages, investments, and retirement, tax, and estate planning. The term often refers to the entire industry that provides financial services to individuals and households and advises them about financial and investment opportunities.

Individual goals and desires—and a plan to fulfill those needs within your financial constraints—also impact how you approach the above items. To make the most of your income and savings, it’s essential to become financially savvy—it will help you distinguish between good and bad advice and make intelligent financial decisions.

Key Takeaways

• Few schools have courses on managing your money, so it is important to learn how through free online articles, courses, blogs, podcasts, or books.
• The core areas of managing personal finance include income, spending, savings, investments, and protection.
• Smart personal finance involves developing strategies that include budgeting, creating an emergency fund, paying off debt, using credit cards wisely, saving for retirement, and much more.
• Being disciplined is important, but it’s also good to know when you shouldn't adhere to the guidelines.

Personal finance is about meeting your personal financial goals. These goals could be anything—having enough for short-term financial needs, planning for retirement, or saving for your child’s college education. It depends on your income, spending, saving, investing, and personal protection (insurance and estate planning).

Not understanding how to manage finances or be financially disciplined has led Americans to accumulate enormous debt. In February 2024, the Federal Reserve Bank reported household debt had increased by $3.4 trillion since December 2019, prior to the recession. In addition, the following balances increased from the third quarter of 2023 to the fourth:

• Credit card balances : Up by $50 billion
• Auto loans : Up by $12 billion
• Consumer loans and store cards : Up by $25 billion
• Total non-housing : Up by $89 billion
• Mortgages : Up by $112 billion

Student loans remained unchanged, at about $1.6 trillion.

Americans are taking on an ever-increasing amount of debt to finance purchases, making managing personal finances more critical than ever, especially when inflation is eating away at purchasing power and prices are rising.

The five areas of personal finance are income, saving, spending, investing, and protection.

Income is the starting point of personal finance. It is the entire amount of cash inflow that you receive and can allocate to expenses, savings, investments, and protection. Income is all the money you bring in. This includes salaries, wages, dividends, and other sources of cash inflow.

Spending is an outflow of cash and typically where the bulk of income goes. Spending is whatever an individual uses their income to buy. This includes rent, mortgage, groceries, hobbies, eating out, home furnishings, home repairs, travel, and entertainment.

Being able to manage spending is a critical aspect of personal finance. Individuals must ensure their spending is less than their income; otherwise, they won't have enough money to cover their expenses or will fall into debt. Debt can be devastating financially, particularly with the high-interest rates credit cards charge.

Savings is the income left over after spending. Everyone should aim to have savings to cover large expenses or emergencies. However, this means not using all your income, which can be difficult. Regardless of the difficulty, everyone should strive to have at least a portion of savings to meet any fluctuations in income and spending—somewhere between three and 12 months of expenses.

Beyond that, cash idling in a savings account becomes wasteful because it loses purchasing power to inflation over time. Instead, cash not tied up in an emergency or spending account should be placed in something that will help it maintain its value or grow, such as investments.

Investing involves purchasing assets, usually stocks and bonds, to earn a return on the money invested. Investing aims to increase an individual's wealth beyond the amount they invested. Investing does come with risks, as not all assets appreciate and can incur a loss.

Investing can be difficult for those unfamiliar with it—it helps to dedicate some time to gain an understanding through readings and studying. If you don't have time, you might benefit from hiring a professional to help you invest your money.

Protection refers to the methods people take to protect themselves from unexpected events, such as illnesses or accidents, and as a means to preserve wealth. Protection includes life and health insurance and estate and retirement planning.

Several financial planning services fall under one or more of the five areas. You're likely to find many businesses that provide these services to clients to help them plan and manage their finances. These services include:

• Wealth Management
• Loans and Debt
• Risk Management
• Estate Planning
• Investments
• Credit Cards
• Home and Mortgage

The sooner you start financial planning , the better, but it’s never too late to create financial goals to give yourself and your family financial security and freedom. Here are the best practices and tips for personal finance.

The 2022 Investopedia Financial Literacy Survey surveyed 4,000 adults and found that most Americans are concerned about personal finance basics, retirement funding, and investing in crypto.

1. Know Your income

It's all for nothing if you don't know how much you bring home after taxes and withholding. So before deciding anything, ensure you know exactly how much take-home pay you receive.

2. Devise a Budget

A budget is essential to living within your means and saving enough to meet your long-term goals. The 50/30/20 budgeting method offers a great framework. It breaks down like this:

• Fifty percent of your take-home pay or net income (after taxes) goes toward living essentials, such as rent, utilities , groceries, and transport.
• Thirty percent is allocated to discretionary expenses, such as dining out and shopping for clothes. Giving to charity can go here as well.
• Twenty percent goes toward the future—paying down debt and saving for retirement and emergencies.

It’s never been easier to manage money, thanks to a growing number of smartphone personal budgeting apps that put day-to-day finances in the palm of your hand. Here are just two examples:

• YNAB (You Need a Budget) helps you track and adjust your spending to control every dollar you spend.
• PocketGuard is available in both free and paid versions. It uses an algorithm to help you avoid overspending by analyzing your income, bills, goals, and budget.

3. Pay Yourself First

It’s important to “pay yourself first” to ensure money is set aside for unexpected expenses, such as medical bills, a significant car repair, day-to-day expenses if you get laid off, and more. The ideal safety net is three to 12 months of living expenses.

Financial experts generally recommend putting away 20% of each paycheck every month. Once you’ve filled up your emergency fund , don’t stop. Continue funneling the monthly 20% toward other financial goals, such as a retirement fund or a down payment on a home .

4. Limit and Reduce Debt

It sounds simple enough: Don't spend more than you earn to keep debt from getting out of hand. But, of course, most people have to borrow from time to time, and sometimes going into debt can be advantageous—for example, if it leads to acquiring an asset . Taking out a mortgage to buy a house might be one such case. Still, leasing sometimes can be more economical than buying outright, whether renting a property, leasing a car, or even getting a subscription to computer software.

On the other hand, minimizing repayments (to interest only, for instance) can free up income to invest elsewhere or put into retirement savings while you’re young when your nest egg gets the maximum benefit from compounding interest . Some private and federal student loans are even eligible for a rate reduction if the borrower enrolls in auto pay.

Student loans account for $1.59 trillion of consumer debt—if you have an outstanding student loan, you should prioritize it. There are myriad loan repayment plans and payment reduction strategies available. If you’re stuck with a high interest rate, paying off the principal faster can make sense.

Flexible federal repayment programs worth checking out include:

• Graduated repayment—progressively increases the monthly payment over 10 years
• Extended repayment—stretches out the loan over a period that can be as long as 25 years
• Income-driven repayment—limits payments to 10% to 15% of your income (based on your income and family size)

5. Only Borrow What You Can Repay

Credit cards can be major debt traps, but it’s unrealistic not to own any in the contemporary world. Furthermore, they have applications beyond buying things. They are crucial to establishing your credit rating and a great way to track spending, which can be a considerable budgeting aid.

Credit needs to be managed correctly , meaning you should pay off your entire balance every month or keep your credit utilization ratio at a minimum (that is, keep your account balances below 30% of your total available credit).

Given the extraordinary reward and incentives offered these days (such as cashback), it makes sense to charge as many purchases as possible—if you can pay your bills in full.

Avoid maxing out credit cards at all costs, and always pay bills on time. One of the fastest ways to ruin your credit score is to constantly pay bills late—or even worse, miss payments.

Using a debit card , which takes money directly from your bank account, is another way to ensure that you will not be paying for accumulated small purchases over an extended period with interest.

6. Monitor Your Credit Score

Credit cards are the primary vehicle through which your credit score is built and maintained, so watching credit spending goes hand in hand with monitoring your credit score. If you ever want to obtain a lease, mortgage, or any other type of financing, then you’ll need a solid credit report . There are a variety of credit scores available, but the most popular one is the FICO score .

Factors that determine your FICO score include:

• Payment history (35%)
• Amounts owed (30%)
• Length of credit history (15%)
• Credit mix (10%)
• New credit (10%)

FICO scores are calculated from 300 to 850. Here’s how your credit is rated:

• Exceptional: 800 to 850
• Very good: 740 to 799
• Good: 670 to 739
• Fair: 580 to 669
• Poor: 579 and below

To pay bills, set up direct debiting where possible (so you never miss a payment) and subscribe to reporting agencies that provide regular credit score updates. In addition, you can detect and address mistakes or fraudulent activity by monitoring your credit report. Federal law allows you to obtain free credit reports once a year from the “Big Three” major credit bureaus : Equifax, Experian, and TransUnion.

Reports can be obtained directly from each agency, or you can sign up at AnnualCreditReport.com, a federally authorized site sponsored by the Big Three.

Some credit card providers, such as Capital One, will provide customers with complimentary, regular credit score updates, but it may not be your FICO score. Instead, Capital One's CreditWise program offers your VantageScore .

Due to the COVID-19 pandemic, the three major credit bureaus are providing free credit reports weekly. The program was extended twice in 2022 and it is now permanent.

7. Plan for Your Future

To protect the assets in your estate and ensure that your wishes are followed when you die, be sure you make a will and—depending on your needs—possibly set up one or more trusts . You also should look into insurance and find ways to reduce your premiums, if possible: auto , home , life , disability , and long-term care (LTC) . Periodically review your policy to ensure it meets your family’s needs through life’s major milestones.

Other critical documents include a living will and a healthcare power of attorney . While not all of these documents directly affect you, all of them can save your next of kin considerable time and expense when you fall ill or become otherwise incapacitated.

Retirement may seem like a lifetime away, but it arrives much sooner than expected. Experts suggest that most people will need about 80% of their current salary in retirement. The younger you start, the more you benefit from what advisors call the magic of compounding interest—how small amounts grow over time.

Setting aside money now for your retirement not only allows it to grow over the long term but also can reduce your current income taxes if funds are placed in a tax-advantaged plan, such as an individual retirement account (IRA) , a 401(k) , or a 403(b) .

While your children are young, take the time to teach them about the value of money and how to save, invest, and spend wisely.

If your employer offers a 401(k) or 403(b) plan , start paying into it immediately, especially if your employer matches your contribution. By not doing so, you’re giving up free money. Take time to learn the difference between a Roth 401(k) and a traditional 401(k) if your company offers both.

Investing is only one part of planning for retirement. Other strategies include waiting as long as possible before opting to receive Social Security benefits (which is smart for most people) and converting a term life insurance policy to permanent life .

8. Buy Insurance

As you age, it's natural for you to accumulate many of the same things your parents did—a family, home or apartment, belongings, and health issues. Insurance can be expensive if you wait too long to get it. Health care, long-term care insurance, life insurance; it all increases in cost the older you get. Additionally, you never know what life will send your way. If you're the sole breadwinner for the family, or you and your partner both work to make ends meet, a lot depends on your ability to work.

Insurance can cover most of the hospital bills as you age, leaving your hard-earned savings in your family's hands; medical expenses are one of the leading reasons for debt. If something happens to you, life insurance can give those you leave behind a buffer zone to deal with the loss and get back on their feet financially.

9. Maximize Tax Breaks

Due to an overly complex tax code , many people leave hundreds or even thousands of dollars sitting on the table every year. By maximizing your tax savings, you’ll free up money that can be invested in your reduction of past debts, enjoyment of the present, and plans for the future.

You should start saving receipts and tracking expenditures for all possible tax deductions and tax credits . Many office supply stores sell helpful “tax organizers” that have the main categories already labeled.

After you’re organized, you’ll want to focus on taking advantage of every tax deduction and credit available, as well as deciding between the two when necessary. In short, a tax deduction reduces the amount of income on which you are taxed, whereas a tax credit reduces the amount of tax that you owe. This means that a $1,000 tax credit will save you much more than a $1,000 deduction.

10. Give Yourself a Break

Budgeting and planning can seem full of deprivations. Make sure you reward yourself now and then. Whether it’s a vacation, a purchase, or an occasional night on the town, you need to enjoy the fruits of your labor. Doing so gives you a taste of the financial independence you’re working so hard for.

Last but not least, don’t forget to delegate when needed. Even though you might be competent enough to do your own taxes or manage a portfolio of individual stocks, it doesn’t mean you should. Setting up an account at a brokerage and spending a few hundred dollars on a certified public accountant (CPA) or a financial planner —at least once—might be a good way to jump-start your planning.

The key to getting your finances on the right track is using skills you likely already have. It’s also about understanding that the principles that contribute to success in business and your career work just as well in personal money management. Three key skills are finance prioritization, assessing the costs and benefits, and restraining your spending.

• Finance Prioritization : This means that you can look at your finances, discern what keeps the money flowing in, and make sure that you stay focused on those efforts.
• Assessing the Costs and Benefits : This key skill keeps professionals from spreading themselves too thin. Ambitious individuals always have a list of ideas about other ways that they can hit it big, whether it is a side business or an investment idea. While there is a place and time for taking a flier, running your finances like a business means stepping back and honestly assessing the potential costs and benefits of any new venture.
• Restraining Your Spending : This is the final big-picture skill of successful business management that must be applied to personal finances. Time and again, financial planners sit down with successful people who still manage to spend more than they make. Earning $250,000 a year won’t do you much good if you spend $275,000 annually. Learning to restrain spending on non-wealth-building assets until after you’ve met your monthly savings or debt reduction goals is crucial in building net worth .

Personal money management isn't one of the most popular topics in educational systems. Many college degrees require some financial education, but it isn't geared toward individuals, which means that most of us will need to get our personal finance education from our parents (if we’re lucky) or learn it ourselves.

Fortunately, you don’t have to spend much money to find out how to manage it better. You can learn everything you need to know for free online and in library books. Almost all media publications regularly dole out personal finance advice, too.

Online Blogs

Reading personal finance blogs is a great way to start learning about personal finance. Instead of the general advice you’ll get in personal finance articles, you’ll learn exactly which challenges real people face and how they address them.

Mr. Money Mustache has hundreds of posts full of insights on escaping the rat race and retiring early by making unconventional lifestyle choices. CentSai helps you navigate myriad financial decisions via first-person accounts. Million Mile Secrets and The Points Guy each teach you how to travel for a fraction of the retail price using credit card rewards. These sites often link to other blogs, so you’ll discover more sites as you read.

Of course, we can’t help tooting our own horn in this category. Investopedia offers a wealth of free personal finance education. You might start with our special sections on budgeting , buying a home , and planning for retirement —or the thousands of other articles in our personal finance section.

At the Library

You may need to visit your library in person to get a library card if you don’t already have one, but after that, you can check out personal finance audiobooks and e-books online without leaving home. Some of the following best sellers may be available from your local library: I Will Teach You to Be Rich , The Millionaire Next Door, Your Money or Your Life , and Rich Dad Poor Dad . Personal finance classics such as Personal Finance for Dummies , The Total Money Makeover , The Little Book of Common Sense Investing , and Think and Grow Rich are also available as audiobooks.

Free Online Classes

If you enjoy the structure of lessons and quizzes, try one of these free digital personal finance courses:

• Morningstar Investing Classroom offers a place for beginning and experienced investors alike to learn about stocks, funds, bonds, and portfolios. Some of the courses you’ll find include “Stocks Versus Other Investments,” “Methods for Investing in Mutual Funds,” “Determining Your Asset Mix,” and “Introduction to Government Bonds.” Each course takes about 10 minutes and is followed by a quiz to help you make sure that you understood the lesson.
• EdX is an online learning platform created by Harvard University and the Massachusetts Institute of Technology. It offers at least three courses that cover personal finance: 'Personal Finance, Part 1: Investing in Yourself" from Wellesley College, “Personal Finance” from Purdue University, and “Finance for Everyone: Smart Tools for Decision-Making” from the University of Michigan. These courses will teach you how credit works, which types of insurance you might want to carry, how to maximize your retirement savings, how to read your credit report, and what the time value of money is.
• “Planning for a Secure Retirement” is an online course from Purdue University. It’s broken up into 10 main modules, and each has four to six sub-modules on topics such as Social Security, 401(k) and 403(b) plans, and IRAs. You’ll learn about your risk tolerance , think about what kind of retirement lifestyle you want, and estimate your retirement expenses.

Personal finance podcasts are a great way to learn how to manage your money if you’re short on free time. While you’re getting ready in the morning, exercising, driving to work, running errands, or preparing for bed, you can listen to expert advice on becoming more financially secure. In addition to “The Investopedia Express with Caleb Silver,” you may find these valuable:

• Freakonomics Radio and NPR’s Planet Money both make economics enjoyable by using it to explain real-world phenomena such as “how we got from mealy, nasty apples to apples that actually taste delicious,” the Wells Fargo fake-accounts scandal, and whether we should still be using cash.
• American Public Media’s Marketplace helps make sense of what’s happening in the business world and the economy.
• So Money with Farnoosh Torabi combines interviews with successful business people, expert advice, and listeners’ personal finance questions.

The most important thing is to find resources that work for your learning style and that you find interesting and engaging. If one blog, book, course, or podcast is dull or difficult to understand, keep trying until you find something that clicks.

Education shouldn’t stop once you learn the basics. The economy changes, and new financial tools like the budgeting apps mentioned earlier are always being developed. Find resources you enjoy and trust, and keep refining your money skills through retirement and beyond.

What Personal Finance Classes Can’t Teach You

Personal finance education is a great idea for consumers, especially people starting out who want to learn investing basics or about credit management; however, understanding the basic concepts is not a guaranteed path to financial sense. Human nature can often derail the best intentions to achieve a perfect credit score or build a substantial retirement nest egg. These three key character traits can help you stay on track:

One of the most important tenets of personal finance is systematic saving. For example, say your net earnings are $60,000 per year, and your monthly living expenses—housing, food, transportation, and the like—amount to $3,200 per month.

There are choices to make surrounding your remaining $1,800 in monthly salary. Ideally, the first step is to establish an emergency fund or perhaps a tax-advantaged health savings account (HSA) .

To be eligible for a health savings account, your health insurance must be a high-deductible health plan (HDHP) .

Establishing an emergency fund takes financial discipline—without it, giving in to the temptation to spend rather than save can have dire consequences. In the event of an emergency, you may not have the money to pay the expenses—leading you to finance them through debt.

Once you have your emergency stash, you'll need to develop investing discipline—it’s not just for institutional money managers who make their living buying and selling stocks. Average retail investors tend to do better by setting an investment target and abiding by it rather than buying and selling stocks trying to time the market.

A Sense of Timing

Timing can be crucial. For instance, imagine you're three years out of college, have established your emergency fund, and want to reward yourself. A Jet Ski costs $3,000, but you want to start investing also. "Investing in growth stocks can wait another year," you say. "I have plenty of time to launch an investment portfolio."

However, putting off investing for one year can have significant consequences. The opportunity cost of buying a personal watercraft can be illustrated through the time value of money.

The $3,000 used to buy the Jet Ski would have amounted to nearly $49,000 in 40 years at 7% interest, a reasonable average annual return for a growth mutual fund over the long haul. Thus, delaying the decision to invest wisely may likewise delay the ability to reach your goal of retiring at age 65.

Doing tomorrow what you could do today also extends to debt payment. If you were to put the Jet Ski on your credit card, the $3,000 credit card balance would take 222 months (18.5 years) to pay off if you only made minimum payments of $75 each month. And don’t forget the interest you’re paying: at an 18% annual percentage rate (APR) , it comes to $3,923 over those months. So, if you were to plunk down the $3,000 to pay the balance rather than let it compound, you'd see substantial savings—nearly $1,000.

Emotional Detachment

Personal finance matters are business, and business should not be personal. A difficult but necessary facet of sound financial decision-making involves removing emotions from a transaction.

Making impulsive purchases feels good but can significantly impact long-term investment goals. So can making unwise loans to family members. Your cousin Fred, who has already burned your brother and sister, will likely not pay you back, either. The smart thing to do is decline his requests for help—you're trying to make ends meet also.

The key to prudent personal financial management is to separate feelings from reason. However, when loved ones are experiencing real trouble, it pays to help if you can—just try not to take it out of your investments and retirement.

Many people have loved ones who always seem to need financial help—it is difficult to refuse to help them. If you include planning to assist them in real emergencies using your emergency fund, it can make the burden easier.

The personal finance realm may have more guidelines and tips to follow than any other. Although these rules are good to know, everyone has their own circumstances. Here are some rules prudent people, especially young adults, are never supposed to break—but can break if necessary.

Saving or Investing a Set Portion of Your Income

An ideal budget includes saving a portion of your paycheck every month for retirement—usually around 10% to 20%. However, while being fiscally responsible is important and thinking about your future is crucial, the general rule of saving a given amount for retirement may not always be the best choice, especially for young people just getting started.

For one thing, many young adults and students need to consider paying for their biggest expenses, such as a new car, home, or postsecondary education. Taking away 10% to 20% of available funds would be a definite setback in making those purchases.

Additionally, saving for retirement doesn’t make much sense if you have credit cards or interest-bearing loans to pay off. The 19% interest rate on your Visa card probably would negate the returns you get from your balanced mutual fund retirement portfolio five times over.

Finally, saving money to travel and experience new places and cultures can be especially rewarding for a young person who’s still unsure about their life path.

Long-term Investing/Investing in Riskier Assets

The rule of thumb for young investors is that they should have a long-term outlook and stick to a buy-and-hold philosophy. This rule is one of the easier ones to justify breaking. Adapting to changing markets can be the difference between making money or limiting your losses and sitting idly by and watching your hard-earned savings shrink. Short-term investing has its advantages at any age.

Common investing logic suggests that because young investors have such a long investment time horizon, they should be investing in higher-risk ventures; after all, they have the rest of their lives to recover from any losses that they may suffer; however, you don’t have to take on undue risk in your short- to medium-term investments if you don’t want to.

The idea of diversification is an important part of creating a strong investment portfolio; this includes both the riskiness of individual stocks and their intended investment horizon .

At the other end of the age spectrum, investors near and at retirement are encouraged to cut back to the safest investments—even though these may yield less than inflation —to preserve capital . Taking fewer risks is important as the number of years you have to earn money and recover from bad financial times dwindles, but at age 60 or 65, you could have 20, 30, or even more years to go. Some growth investments could still make sense for you .

Personal finance is the knowledge, instruments, and techniques used to manage your finances. When you understand the principles and concepts behind personal finance, you can manage debt, savings, living expenses, and retirement savings.

What Are the 5 Main Components of Personal Finance?

The five main components are income, spending, savings, investing, and protection.

What Is an Example of Personal Finance?

One of the key ideas behind personal finance is not to spend more than you make. For instance, if you make $50,000 a year but spend $65,000, you'll end up with debt that continues to compound because you'll be spending more than you make to pay for past expenses.

Why Is Personal Finance So Important?

The concepts behind managing your personal finances can guide you in making intelligent financial decisions. In addition, the decisions you make throughout your life on what to buy, sell, hold, or own can affect how you live when you can no longer work.

Personal finance is managing your money to cover expenses and save for the future. It is a topic that covers a broad array of areas, including managing expenses and debt, how to save and invest, and how to plan for retirement. In addition, it can include ways to protect yourself with insurance, build wealth , and ensure wealth is passed on to the people you want it to pass to.

Understanding how to manage your finances is an important life-planning tool that can help set you up for a life without debt; you gain control of financial stresses and have a way to manage the expensive surprises that life can throw at you.

Federal Reserve Bank of New York. " Quarterly Report on Household Debt and Credit; 2023: Q4 (Released February 2024) ." Summary Page.

YNAB. “ Gain Total Control of Your Money .”

PocketGuard. " PocketGuard ."

Discover. " Private Student Loans: Automatic Payments & Auto Debit Reward Terms and Conditions ."

Federal Student Aid. " Repaying Student Loans 101 ."

Federal Student Aid. " Repayment Plans ."

myFICO. " What Should My Credit Utilization Ratio Be? "

myFICO. “ What’s the Difference Between FICO Scores and Non-FICO Credit Scores? ”

myFICO. " What's In My FICO Scores? "

myFICO. " What is a FICO Score? "

Federal Trade Commission. “ Understanding Your Credit .”

Capital One. " CreditWise: Get Your Free Credit Report ."

Federal Trade Commission. " You Now Have Permanent Access to Free Weekly Credit Reports ."

Fidelity. " How Much Will You Spend in Retirement? "

Consumer Financial Protection Bureau. " Medical Debt Burden in the United States ."

Internal Revenue Service. " Credits and Deductions for Individuals ."

Mr. Money Mustache. “ Mr. Money Mustache: Financial Freedom Through Badassity .”

CentSai. “ Take the Fear Out of Finance .”

Million Mile Secrets. “ Beginner’s Guide to Credit Cards, Miles, and Points .”

The Points Guy. “ TPG Beginner’s Guide: Everything You Need to Know About Points, Miles, Airlines, and Credit Cards .”

Morningstar. “ Morningstar Investing Classroom .”

EdX. " About EdX ."

EdX. " Catalog ."

Purdue University, College of Agriculture. “ Planning for a Secure Retirement .”

Freakonomics. “ Freakonomics Radio .”

NPR. “ Planet Money: The Economy Explained .”

Apple Podcasts. “ Marketplace: American Public Media .”

So Money Podcast — Farnoosh. “ So Money with Farnoosh Torabi: Candid Conversations for a Richer, Happier Life .”

Internal Revenue Service. " Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans ." Pages 3-4.

• Terms of Service
• Editorial Policy
• Privacy Policy

Essay on Financial Literacy for Students and Children

Importance of financial literacy, an introduction to financial literacy.

We go to schools, colleges, universities to complete our educated and start earning our livelihood. We take up jobs, practise professions or start our own businesses so that we can earn money to make our living. But which of these institutions make us capable of managing our own hard-earned money? Probably a very few of them. 

Our ability to effectively manage our money by drawing systematic budgets, paying off our debts, making buying and selling decisions and ultimately becoming financially self-sustainable is known as financial literacy. 

Financial literacy is knowing the basic financial management principles and applying them in our day-to-day life. 

Financial Literacy – What does it Involve? 

From simple practices like keeping a track of our expenses and understanding the need to spend money if we like a product to striking a balance between the value of time saved and money lost, paying our taxes and filing of tax returns, finalizing the property deals, etc – everything becomes a part of financial literacy. 

Get the huge list of 500+ Essay Topics here

As human beings, we are not expected to know the nitty-gritty of financial management. But managing our own money in a way that it does not affect us and our family in a negative way is important. We certainly do not want to end up having a day with no money at hand and hunger in our stomach. 

Why is Financial Literacy so Important?

Financial literacy can enable an individual to build up a budgetary guide to distinguish what he buys, what he spends, and what he owes. This subject additionally influences entrepreneurs, who incredibly add to financial development and strength of our economy. 

Financial literacy helps people in becoming independent and self-sufficient. It empowers you with basic knowledge of investment options, financial markets, capital budgeting, etc.

Understanding your money mitigates the danger of facing a fraud-like situation. A few strategies are anything but difficult to accept, particularly when they’re originating from somebody who is by all accounts learned and planned. Basic knowledge of financial literacy will help people with foreseeing the risks and argue/justify with anyone learned and well-informed.

What should you read on / get informed about in Financial Literacy?

• Budgeting and techniques of budgeting
• Direct and indirect taxation system
• Direct tax slabs
• Income and expense tracking 
• Loans and debt – EMI management 
• Interest rate systems: fixed versus floating
• Business and organisational transaction studies
• Elementary Book-keeping and Accountancy
• Cash in-flow and out-flow Statements
• Investment & personal finance management
• Asset management:
• Business negotiation skills and techniques
• Make or buy decision-making
• Financial markets 
• Capital structure – owner’s funds and borrowed funds
• Fundamentals of Risk Management
• Microeconomics and Macroeconomics fundamentals

While there are various media to learn about financial literacy, we recommend that you join a short-term, weekend programme which helps you get financially literate.

Customize your course in 30 seconds

Which class are you in.

• Travelling Essay
• Picnic Essay
• Our Country Essay
• My Parents Essay
• Essay on Favourite Personality
• Essay on Memorable Day of My Life
• Essay on Knowledge is Power
• Essay on Gurpurab
• Essay on My Favourite Season
• Essay on Types of Sports

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Download the App

Essays on financial decision making

Jayasundara, Bambaradeniye Malwaththe Walawwe Udayanga Chinthaka Bandara (2021) Essays on financial decision making. PhD thesis, Queensland University of Technology.

Description

This thesis seeks to understand and find solutions to some of the vexing issues relating to financial literacy, financial decisions and behaviour. A major part of the thesis explores how a short, focused, just-in-time financial literacy intervention can improve immediate financial decisions, and how decisions of our peers impact our own choices under various circumstances. These issues were investigated using laboratory experiments under varying socio-economic and cultural backgrounds of Australia and Sri Lanka. Finally, the thesis addresses a well-known 'wicked problem' relating to inadequate retirement saving and offers a novel behavioural insight into improving long-term saving behaviour.

Impact and interest:

Citation counts are sourced monthly from Scopus and Web of Science® citation databases.

These databases contain citations from different subsets of available publications and different time periods and thus the citation count from each is usually different. Some works are not in either database and no count is displayed. Scopus includes citations from articles published in 1996 onwards, and Web of Science® generally from 1980 onwards.

Citations counts from the Google Scholar™ indexing service can be viewed at the linked Google Scholar™ search.

• Notify us of incorrect data
• How to use citation counts
• More information

Full-text downloads:

Full-text downloads displays the total number of times this work’s files (e.g., a PDF ) have been downloaded from QUT ePrints as well as the number of downloads in the previous 365 days. The count includes downloads for all files if a work has more than one.

Export: EndNote | Dublin Core | BibTeX

Repository Staff Only: item control page

• Browse research
• TEQSA Provider ID: PRV12079 (Australian University)
• CRICOS No. 00213J
• ABN 83 791 724 622
• Accessibility
• Right to Information

Financial Management and Decision Making

Using the ‘”Project Appraisals” Excel File calculate the Payback Period and the Net Present Value for each project, and for each of the above methods of project appraisal, recommend which project should be taken up.

The act of investing is a critical choice for firms. There are several ways for evaluating potential investments, such as net present value (NPV) and payback time. The report’s goal is to use these methodologies to evaluate three possible projects and recommend which investment choice gives the best profits.

I evaluated three investment options after extensively reviewing the supplied calculations: Project A, Project B, and Project C. The study included net present value (NPV) and payback period estimates for each option. Based on these figures, my advice for which investment choice to pursue is as follows.

To begin, consider how the payback time is calculated. This refers to the amount of time required for an investment to recoup its original costs. Project A has the shortest payment cycle at two years and seven months, while Project B has a three-year-and-one-month payback plan. Finally, there is Project C, which has a payback period of three years and seven months. As a result of this mathematical evaluation, proceeding with Project A would be extremely advantageous in terms of immediately obtaining beginning cash.

Payment recovery length disregards the value of time, hence it is critical to consider the net present value (NPV) while examining each project. NPV calculates how much cash will be available today when future income streams are included, commonly using investment return rates as the cost of capital.

Based on its net present value, Project A is predicted to be worth £1,847. With a greater NPV of £3,255 and £3,057, respectively, for Projects B and C in compared to Project A’s NPV, the latter two generate more profit during the project’s lifetime, making them more viable investment possibilities.

I may compare the projects’ different internal rates of return (IRR) to perform a more complete evaluation. The IRR denotes the moment at which the NPV equals zero. A higher number for this statistic usually indicates that a project is more enticing or beneficial. It is possible to estimate the precise IRRs for any specific project under consideration by employing cash flows and discount factors provided in advance.

Project A, the initial endeavor, has an expected internal rate of return (IRR) of roughly 26.5%. The second project, Project B, has a greater IRR of about 37.8%, while the third project, Project C, has a more respectable IRR of 36.2%. This calculation confirms that Projects B and C are undeniably more appealing investments than Project A since they have higher values in terms of IRRs acquired by each project.

In conclusion, although Project A has the shortest term for a return on investment, Projects B and C provide more lucrative endeavors over a longer period of time. Based on net present values (NPV) and internal rates of return (IRR), either Project B or C comes out as strong candidates for investment. Nonetheless, given their close IRRs and NPVs, it would be prudent to consider additional factors such as potential risks associated with each project undertaking(s) and resource availability, amongst others, before making any final decisions on which endeavor(s) should ultimately receive support from your organization’s top brass.

1.1. Using all of the information acquired from the aforementioned approaches, which project would you suggest, and why?

Project b is a more feasible investment after accounting for net present value (npv), payback length, and internal rate of return (irr)..

While Project A has the shortest recovery period (two years and seven months), Projects B and C have higher net present values (NPVs) and internal rates of return (IRRs), indicating that they are more remunerative investments for generating profits over their lifetime. On the one hand, there is Project B, which has an NPV of £3,255 and an IRR of approximately 37.8%; on the other hand, there is Project C, which has an NPV of £3,057 and an IRR of approximately thirty-six point two percent [36.2%]. Despite exhibiting a longer repayment lapse than what is demonstrated by project “B,” it is critical to note how this disparity falls within relatively insignificant bounds when compared to all other relevant factors, such as monetary value represented by both aforementioned financial metrics, i.e., higher Net Present Value alongside Internal Rate of Return indicative enough to endow investment status unto project ‘B.’

Aside from monetary considerations, additional things must be considered while making an investment decision. These criteria include the possible hazard associated with each plan, the resources available and if they match what is necessary, as well as how well it aligns with a corporation’s larger-scale aims (Damodaran, 2019).

When it comes to possible injury, Project A has the lowest risk since it has a shorter payback period and, as a result, a shorter period of uncertainty about returning the initial investment. Despite this, Projects B and C are low-risk ventures since they have positive NPVs and strong IRRs, indicating their ability to produce profits across their life cycles.

Making an appropriate suggestion for resource availability is difficult since more information regarding the exact resources necessary for each enterprise has yet to be supplied. Nonetheless, given that all three propositions demand comparable initial inputs, it is reasonable to assume that their associated resource requirements are similarly similar in proportion and magnitude.

Finally, in order to match with the totality of the organization’s strategies and aims, it is essential to weigh in on each specific goal and priority. A lack of such understanding would make providing advise on this aspect more difficult.

To summarize, Project B is recommended based on the financial metrics of NPV and IRR, as well as a consideration of risk and resource availability elements. While Project A has a shorter payback period, Projects B and C have significantly superior NPVs and IRRs, respectively, confirming they are more worthwhile investments in terms of generating profits throughout their lifecycle. Furthermore, all three enterprises are generally low-risk endeavors with identical resource needs.

1.2. Explain the benefits, drawbacks, and advantages of investment assessment approaches.

Investment appraisal tools are essential instruments for analyzing investment prospects. These tools are critical in providing an orderly approach of analyzing the viability and potentiality of financial initiatives, as well as helping decision-makers to make informed decisions by balancing numerous economic and non-economic factors (Damodaran, 2019). There are several methodologies available to evaluate the prospective earnings or losses of investments. Net present value (NPV), payback time, internal rate of return (IRR), and profitability index (PI) are some of these strategies. These strategies are critical in determining if an investor’s investment options will eventually result in a successful end. As previously stated, the applications, disadvantages, and strengths of these systems will be addressed.

The net present value (NPV) is a common measure used in investment management to determine if an opportunity is worth pursuing. This methodology assesses future inflows and outflows primarily via a present-day viewpoint. By doing so, decision-makers may make educated judgments about whether or not to undertake a project, weighing both incoming revenue streams and outgoing expenditures (Damodaran, 2019). NPV takes into account many elements such as time sensitivity as well as different discount rates for more accurate assessments of potential investments; this makes it particularly useful when given with several possibilities at the same time, all competing for attention.

One of the difficulties with the NPV technique is that it requires exact estimates of future cash flows, which may be difficult to predict. Variations in market conditions, competition, and other extraneous factors may have a significant influence on future cash flows, diminishing dependence on the NPV technique’s reliability, especially when the environment is dynamic (Aguinis & Solarino, 2020). Furthermore, it may only be sometimes feasible to receive all incoming and exiting cash inflows at the discount rate indicated by this technique.

Another investment evaluation methodology, the payback time evaluation technique, determines how long it will take to recoup an investment’s original cost. The ease of use and simplicity of this assessment tool allow decision-makers to do a quick preliminary computation toward recovering their invested money (Brealey, Myers, & Allen, 2020). This greatly helps in shorter-term goal initiatives or when cash flow is a primary concern.

Although the payback period approach has excellent characteristics, it has limitations. When examining an investment’s feasibility beyond its payback period, this technique must include more than just the time value of money. It must also consider future profitability. Notably, long-term initiatives that are a good financial investment may be neglected if just this technique is used for assessment (Brealey, Myers, & Allen, 2022). Furthermore, using consistent cash inflow assumptions throughout an activity may ignore inconsistencies or changes that are common in varied ventures.

The restriction of the IRR approach is its underlying assumption that all cash inflows are reinvested at the rate of return, which may not be relevant in practice. Furthermore, using this approach to compare schemes with different amounts invested and different cash flow patterns might lead to incorrect findings (Graham & Dodd, 2018). If one project requires a larger initial investment or has an irregular pattern in payment receipts over time, two projects with comparable Internal Rates of Return may have differing Net Present Values.

The limitations of investment evaluation techniques: The procedures for measuring investment viability have, at times, proved insufficient in offering a full scope. In reality’s dynamic market settings and economic situations, these strategies depend on assumptions that need total credibility or relevance (Ross, Westerfield, & Jordan, 2020). Furthermore, these methods cannot ensure that all possible variables are included when evaluating long-term prospects, thereby neglecting key external elements that might dramatically effect returns acquired from investments over periods longer than those first examined by investors. Regardless of their utility within their current capabilities, such measures should not be relied on heavily as they are only limited aides and should ultimately bear weight proportionate to other qualitative insights about said future ventures under scrutiny prior to making any formulating decisions advantageous towards achieving optimal outcomes and substantial outcome-related risks attached thereto.

Using investment assessment methodologies necessitates establishing particular assumptions, which might have an impact on the accuracy of the results. The validity of these assumptions may only be assessed retroactively, giving possibility for variations in results from one study to the next.

Estimating discount rates and predicted cash flows are important factors in investment assessment approaches, but evaluating them may be difficult. Because of this intricacy, the results produced may only sometimes represent correct statistics. Furthermore, deciding which discount rate is suitable for a given case may be difficult (Berk & DeMarzo, 2018). As a result, understanding the time value of money is critical when making investment choices, as is understanding its complexities, which help to improved decision-making processes regarding financial investment assessment methodologies used by businesses and people.

The mysterious destiny that awaits us all is accompanied by investment assessment procedures that entail predicting future cash inflows; such estimations are naturally prone to uncertainty. This issue creates significant difficulties when trying to forecast the future returns of any particular financial undertaking.

Using investment assessment methods has various advantages. The methodologies used here give an all-encompassing examination of potential investments, enabling investors to identify and prioritize opportunities based on their objectives while limiting risk (Chen & Wang, 2019). Individuals may better grasp the different dynamics in contemporary markets and make educated choices based on good facts rather than hearsay or intuition alone by using complicated financial models with advanced data analysis technologies. Furthermore, such techniques often assist organizations in remaining competitive by allowing them to spend more strategically when they adjust to changes within their specific industry or wider economic developments globally.

To put everything together, investment evaluation techniques should be used while evaluating investment prospects. This contributes to the development of a systematic approach to making sensible judgments by taking into account the time worth of money and generating grounds for comparison with other accessible possibilities. However, it is essential to keep an eye on their limits and use them in conjunction with other analytical forms to make educated decisions about any prospective investment opportunity at hand.

1.3. Are the aforesaid techniques legally obliged to be offered by Goldstar (Ltd.)? Determine which accounting concepts must be established by law.

It is essential for commercial organizations to comply with the legal requirements for accounting and fiscal reporting. Specifically, particular rules are in place that require enterprises to adhere to the necessary requirements while compiling their financial records (Lins & Servaes, 2019).

For example, the International Financial Reporting Standards (IFRS) specify how financial statements should be prepared and distributed. Furthermore, several countries have Generally Accepted Accounting Principles (GAAP) that specify certain accounting requirements expected of organizations operating inside their jurisdiction.

Regarding Goldstar (Ltd.), it is likely that the establishment is required to follow the accounting rules and reporting duties established by relevant regulatory bodies in their local region (Lins & Servaes, 2019). Companies in the United Kingdom, for example, are required to comply with all financial reporting standards contained in the Companies Act 2006 and those developed under governance structures imposed by The Financial Reporting Council (FRC).

The duties that must be met are many, but one of them is the creation of economic reports that offer an accurate and fair representation of a company’s financial situation. Among other things, the company must follow appropriate accounting requirements (such as those established by IFRS) and offer intelligence on transactions done between linked firms.

Although investment evaluation methods are not required by accounting rules, they may help with decision-making when evaluating prospective investments. Corporations must now ensure that any assessments done on their investments are exact and trustworthy, as well as based on sound financial concepts and studies.

In general, although legal obligations may not require the use of investment assessment methodologies, it is critical for enterprises to adhere to appropriate jurisdictional accounting principles and reporting requirements in order for their financial statements to remain precise and trustworthy.

2.1 In addition to the project assessment options listed above, critically examine what additional sources of money Goldstar (Ltd.) has access to.

In addition to the previously stated investment assessment opportunities, Goldstar (Ltd.) has access to a variety of alternative financing options. These alternative channels include:

Goldstar (Ltd.) may get financial help from lending institutions to fund their prospective initiatives. Taking this option may provide them with a significant sum of money up front, allowing for repayment at predefined and agreed-upon intervals between the parties concerned.

Goldstar (Ltd.) may provide the ability to postpone payment for products and services obtained by establishing credit terms with their suppliers (Mian & Sufi, 2021). This helpful technique offers short-term finance, which aids in the continuation of activities.

In terms of corporate finance, Goldstar (Ltd.) has a viable option to sell their accounts receivable – or unpaid and outstanding client bills – to an external factoring firm in exchange for the quick purchase of liquid assets (Khandelwal & Kulkami, 2022|). They may dramatically improve their cash flow condition while also gaining access to finance alternatives via this approach.

The equity financing investment technique enables Goldstar (Ltd.) to develop financial resources by distributing ownership of their organization among shareholders. This method offers a long-term supply of funding without the pressure of remitting payments on a set schedule or at predefined intervals (Firth, Cheng, & Tam, 2018).

Goldstar (Ltd.) may be eligible for financial assistance from a variety of sources, including government agencies and charitable groups. These awards provide considerable financial support that is only committed to certain projects or activities pursued by the firm.

Goldstar (Ltd.) must carefully consider all of the pros and drawbacks of every potential fund-raising strategy in order to choose one that best meets their financial needs and ambitions (Bodie, Kane, & Marcus, 2018). Variables like as interest rates, payback periods, and corporate leverage should all be considered when determining the best financing provider.

2.2. Provide a final recommendation for Goldstar (Ltd.)’s fund evaluation based on the UK economic scenario and the following calculations and analyses.

Given the present state of affairs in the British economy, it is essential that Goldstar (Ltd.) evaluates all factors and makes an informed judgment about their evaluation for monetary support. The current economic rebound in the United Kingdom has resulted in a noticeable increase in global demand, resulting in increased price conflicts (Copeland, Koller, & Murrin, 2019). Furthermore, continual supply scarcity combined with increasing inflation rates has hindered expansion. Actions were made to mitigate this adversarial occurrence, such as raising interest rates, which were carried out under the supervision of the Bank of England.

In this case, the prior approaches for analyzing investments may provide a comprehensive understanding of potential returns on investment. Project A has a shorter payback time and a higher net present value, indicating a higher prospective return on investment. Projects B and C, on the other hand, need longer timeframes to recover expenditures and have lower net present values. When compared to other projects reviewed so far, they offer greater internal rates of return, indicating superior long-term income prospects during initial capital investment.

Given the current status of the economy, it may be prudent for Goldstar (Ltd.) to choose a plan with a shorter payback period and a higher net present value – Project A is one such example. This ensures that the investment is repaid in fewer years while simultaneously maximizing the future return.

One must admit that the success of an investment is dependent on factors other than the monetary amount spent, such as market tendencies, competitors’ actions, and scientific development. As a result, Goldstar (Ltd.) must consider several funding sources, such as bank loans or equity financing, in order to broaden its portfolio of assets and mitigate the risks associated with a single initiative. Furthermore, they should keep a close eye on movements in the UK economy in order to stay on top of changing situations and change their plan appropriately.

Aguinis, H., & Solarino, A. M. (2020). The Oxford Handbook of Business and the natural environment. Oxford University Press. doi: 10.1093/oxfordhb/9780190640613.001.0001

Berk, J., & DeMarzo, P. (2018). Corporate finance. Pearson Education Limited.

Bodie, Z., Kane, A., & Marcus, A. J. (2018). Investments. McGraw-Hill Education.

Brealey, R. A., Myers, S. C., & Allen, F. (2020). Principles of corporate finance. McGraw-Hill Education.

Brealey, R. A., Myers, S. C., & Allen, F. (2022). Principles of corporate finance. McGraw-Hill Education.

Chen, J., Li, X., & Wang, J. (2019). Assessing the sustainability of social investment: Evidence from Chinese non-profit organizations. Sustainability, 11(6), 1-16. doi: 10.3390/su11061608

Copeland, T. E., Koller, T., & Murrin, J. (2019). Valuation: Measuring and managing the value of companies. John Wiley & Sons.

Damodaran, A. (2019). Investment valuation: Tools and techniques for determining the value of any asset. John Wiley & Sons.

Firth, M., Cheng, P., & Tam, R. (2018). The impact of market competition, regulation, and strategy on banks’ cost of equity capital. Journal of Banking & Finance, pp. 87, 93–106. doi: 10.1016/j.jbankfin.2017.10.015

Graham, B., & Dodd, D. (2018). Security analysis: Principles and technique. McGraw-Hill Education.

Khandelwal, A. K., & Kulkarni, V. G. (2022). Capital structure and firm performance: A meta-analysis. Journal of Business Research, 142, 117-127. doi: 10.1016/j.jbusres.2021.10.047

Lins, K. V., & Servaes, H. (2019). Corporate finance: Theory and practice. John Wiley & Sons.

Mian, A., & Sufi, A. (2021). Finance and inequality: The growth of credit and distribution across income groups. Journal of Financial Economics, 141(1), 2-23. doi: 10.1016/j.jfineco.2020.07.001

Ross, S. A., Westerfield, R. W., & Jordan, B. D. (2020). Essentials of corporate finance. McGraw-Hill Education.

Cite This Work

To export a reference to this article please select a referencing style below:

Related Essays

Disclosure of executive compensation in financial records, capital budgeting analysis of an ice cream store acquisition for mr. specter-a grocery store owner, human resources comparison, operations management missteps in the development of the ford pinto, managing a digital firm post-covid-19- case of yoello inc., richmond international airport, popular essay topics.

• American Dream
• Artificial Intelligence
• Black Lives Matter
• Bullying Essay
• Career Goals Essay
• Causes of the Civil War
• Child Abusing
• Civil Rights Movement
• Community Service
• Cultural Identity
• Cyber Bullying
• Death Penalty
• Depression Essay
• Domestic Violence
• Freedom of Speech
• Global Warming
• Gun Control
• Human Trafficking
• I Believe Essay
• Immigration
• Importance of Education
• Israel and Palestine Conflict
• Leadership Essay
• Legalizing Marijuanas
• Mental Health
• National Honor Society
• Police Brutality
• Pollution Essay
• Racism Essay
• Romeo and Juliet
• Same Sex Marriages
• Social Media
• The Great Gatsby
• The Yellow Wallpaper
• Time Management
• To Kill a Mockingbird
• Violent Video Games
• What Makes You Unique
• Why I Want to Be a Nurse
• Send us an e-mail

Decision Making Essay Examples and Topics

Back bay battery strategic innovation simulation, advantages and disadvantages of problem solving and group decision making.

• Words: 1878

The Case of “Energetics Meets Generex”: Negotiations

Creative intelligence styles’ comparison and influence, the role of management information system (mis) in business.

• Words: 4372

Wal-Mart Company’s Decision Making Process

Kepner-tregoe technique application to problem solving.

• Words: 2992

Emotional Intelligence and Effective Leadership

• Words: 1429

Organizational Learning and Decision Making

• Words: 2026

Decision-Making Process in Healthcare Sector

• Words: 1457

Utility Theory. “The Thinker’s Toolkit” by Jones

Microsoft company’s organizational change.

• Words: 1935

The Decision-Making of Toledo Leather Company

Bad vs. wrong decisions in decision making, decision-making process in selecting a university, brainstorming, nominal and delphi decision-making.

• Words: 1101

Design Management in H&M

• Words: 5037

Lindblom’s “The Science of Muddling Through” Critique

The importance of forecasting on sales management decision making.

• Words: 1721

Pichai’s Decision-Making Process at Google and Alphabet

• Words: 1062

Rational Model of Decision Making

Educational pension investments case, psychological traps in the human decision making.

• Words: 1995

Decision Making: Concepts and Practices

• Words: 1357

Three perspectives in the organisational theory

• Words: 3459

Leadership Styles in the UK, USA, and Japan

• Words: 1705

The Planning and Decision-Making Concepts

Xyz company: operations decision.

• Words: 1159

Business Math: Quantitative Techniques and Problem-Solving

Decision-making. lindblom’s “the science of “muddling through””, decision management and control in organizations, lenovo company’s decision-making process.

• Words: 1693

The Ethical Decision-Making Model

Problem solving process at the workplace.

• Words: 1390

Cross-Cultural Management: Decision-Making

Telstra company knowledge management.

• Words: 3065

Management Styles and Organizational Performance

• Words: 1081

Plant Site Selection: Mexico, Brazil, and Argentina

• Words: 1194

Decision Support System, Business Intelligence and Examples of Analytics

Consumer product safety database’s controversies.

• Words: 1205

The Role of Data in Business Decision-Making

Economic data in business decisions.

• Words: 2138

Seven-Step Process for Ethical Decision-Making

• Words: 1301

Decision-Making Strategies and Techniques

• Words: 1413

Microsoft Corporation’s Decision-Making Strategy

Acme electronics and omega electronics companies operations.

• Words: 1934

Global Decision Making

• Words: 1616

Decision-Making With Managerial Accounting

• Words: 1779

Delayed Decision Making and Its Consequences

Starbucks: decision maker’s functions, leasing decisions’ effect on financial leverage, ethical decision-making model for cultural hiring, buying process: decision-making.

• Words: 2762

Sustainability, Decision-Making, and Business Ethics

Factors affecting the effectiveness of the decision-making process.

• Words: 10250

Making a Decision to Do Business Abroad

A theory’s practicality in business, neuroscience of decision-making, making financial decisions on investment in education.

• Words: 1184

Decision-Making Techniques: Analysis

Elastic and inelastic demand and pricing decisions.

• Words: 1152

The Use of Algorithms in Decision-Making

Data analysis techniques for decision making, researching of behavioral economics, emotional intelligence and emotional management, frtech: decision-making process.

• Words: 2527

Evidence-Informed Decision Making in Healthcare

• Words: 1436

Aspects of IT in Decision-Making

• Words: 1220

Estimated Travel Costs for Two Graduates

Religious beliefs in business decision-making, a decision-making process at the workplace, discussion of decision matrix analysis, decision-making in a workplace.

• Words: 1003

Overconfidence in the Trading Activity Context

• Words: 1406

Innovation and Technology Management and Decision Making

Craft managerial styles and heuristics.

• Words: 1397

Styles of Decision-Making, and Management of Personality of School Principals

• Words: 1379

Decision-Making Models and Diplomatic Approaches

• Words: 1442

Elements Involved in Decision-Making

Review of modern data analysis trends, discussion of supply and demand, multi-criteria decision-making techniques, decision-making in the workplace after covid-19, the business conflict: red-holdings case, decision-analysis and problem-solving techniques.

• Words: 1948

Problem Solving Aspects in Business

Change management and decision-making, business ethics and stakeholder management, data use and validity in business, decision-making actions from organizational behavior perspective, influence of intuition on the decision-making process, ethics vignette and resolution: case study.

• Words: 1446

Healthy Hiring: Ecommerce Help Wanted

Tips to improve the decision-making process, how a manager can use hypothetical budget figures for decision making, nike: covid implications and possible solutions.

• Words: 1489

Conflicts in the Workplace: Solving and Decision-Making

• Words: 1024

Decision Making in Organizations

Predictive modeling fundamentals and decision trees, multi-criteria decision analysis methods.

• Words: 1393

A Bias of Screening Study by Lagziel and Lehrer

Home depot firm’s decision-making under uncertainty.

• Words: 1187

Relation Between Investments and Education

• Words: 1673

Making the Best Decisions and Solving Common Social Problems

The need for a limited liability partnership, ethical decision making and information technology.

• Words: 2437

MYOB Software Contribution to Business Decision-Making

Vulnerability in the construction industry: revising objectives in the light of cyber threats, business decision making: concepts and terminology of statistics.

• Subjects: Brand Management

Regression Analysis in Business Analytics

Forecasting strategy of seven cycles, decision making: thinking and reasoning, creative problem solving in production management, an analysis of pay policies, decision-making in business: help our homeless offspring, accounting for decision making and financial stability, decision making and benefits: cincinnati flow technology, career choices and factors influencing those choices.

• Words: 1155

Analysis of Law Decision Making

Decision-making and global implications of perceptions.

File(s) under permanent embargo

Reason: Under embargo until June 2025. After this date a copy can be supplied under Section 51(2) of the Australian Copyright Act 1968 by submitting a document delivery request through your library, or by emailing [email protected]

Essays on Household Risk-taking and Corporate Investment Decisions

Campus location, principal supervisor, additional supervisor 1, year of award, department, school or centre, degree type, usage metrics.

• Household finance and financial literacy