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Ch15.ppt
Ch15.ppt
Ch15.ppt
Ch15.ppt
Ch15.ppt
Ch15.ppt
Ch15.ppt
Ch15.ppt
Ch15.ppt
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Ch15.ppt

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  • 1. Tools & Techniques of Financial Planning Leimberg, Satinsky, Doyle & Jackson Budgeting Personal Financial Statements
  • 2. Budgeting <ul><li>Reasons to use a budget </li></ul><ul><ul><li>Measure achievement toward goals </li></ul></ul><ul><ul><li>Resources are limited </li></ul></ul><ul><ul><li>Evaluate performance </li></ul></ul><ul><ul><li>Communicate plan </li></ul></ul><ul><ul><li>Provide incentive </li></ul></ul><ul><ul><li>Control expenses </li></ul></ul><ul><ul><li>Reduce overspending </li></ul></ul><ul><ul><li>Anticipate cash shortfalls </li></ul></ul>
  • 3. Budgeting <ul><li>Guidelines </li></ul><ul><ul><li>Generally one year </li></ul></ul><ul><ul><li>Have some flexibility/fun </li></ul></ul><ul><ul><li>Don’t sweat accuracy, especially small items </li></ul></ul><ul><ul><li>Compare results to performance </li></ul></ul>
  • 4. Budgeting <ul><li>Steps </li></ul><ul><ul><li>Estimate income </li></ul></ul><ul><ul><ul><li>Variable income </li></ul></ul></ul><ul><ul><ul><ul><li>High/Low income estimates </li></ul></ul></ul></ul><ul><ul><li>Estimate expenses </li></ul></ul><ul><ul><ul><li>Fixed </li></ul></ul></ul><ul><ul><ul><ul><li>Mortgage, car payments, insurance </li></ul></ul></ul></ul><ul><ul><ul><li>Discretionary </li></ul></ul></ul><ul><ul><ul><ul><li>Vacations, recreations, furnishings </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Investments, retirement savings??? </li></ul></ul></ul></ul>
  • 5. Budgeting <ul><li>Steps </li></ul><ul><ul><li>Determine excess/shortfall </li></ul></ul><ul><ul><li>Make adjustments based on excess/shortfall </li></ul></ul><ul><ul><ul><li>Additional savings/investments </li></ul></ul></ul><ul><ul><ul><li>Cheaper vacation </li></ul></ul></ul><ul><ul><li>At end of period, compare actual results to budget </li></ul></ul><ul><ul><ul><li>Investigate cause of significant variances </li></ul></ul></ul><ul><ul><ul><ul><li>Positive/negative </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Adjust future budgets </li></ul></ul></ul></ul>
  • 6. Budgeting <ul><li>Cash reserves </li></ul><ul><ul><li>Factors impacting </li></ul></ul><ul><ul><ul><li>Number of wage earners </li></ul></ul></ul><ul><ul><ul><li>Size of family </li></ul></ul></ul><ul><ul><ul><li>Stability of income </li></ul></ul></ul><ul><ul><ul><li>Insurance deductibles </li></ul></ul></ul><ul><ul><ul><li>Available lines of credit </li></ul></ul></ul><ul><ul><ul><li>Non-cash investments </li></ul></ul></ul><ul><ul><ul><li>Parents’ ability to help </li></ul></ul></ul>
  • 7. Budgeting <ul><li>Increasing investments </li></ul><ul><ul><li>Pay yourself first </li></ul></ul><ul><ul><ul><li>Make it automatic </li></ul></ul></ul><ul><ul><li>Easier to increase rate of investment than return on investment </li></ul></ul><ul><ul><ul><li>Invest portion of annual raise/bonuses </li></ul></ul></ul>
  • 8. Personal Financial Statements <ul><li>Statement of Financial Condition </li></ul><ul><ul><li>Assets listed in order of liquidity </li></ul></ul><ul><ul><li>Tell your banker/tell your charming ex??? </li></ul></ul><ul><ul><li>Value of assets </li></ul></ul><ul><ul><ul><li>Not publicly traded </li></ul></ul></ul><ul><ul><ul><ul><li>Appraisals </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Deferred income taxes </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Home, stock, retirement accounts </li></ul></ul></ul></ul></ul>
  • 9. Personal Financial Statements <ul><li>Statement of Financial Condition </li></ul><ul><ul><li>Liabilities </li></ul></ul><ul><ul><ul><li>Accrued </li></ul></ul></ul><ul><ul><ul><ul><li>Property taxes </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Income taxes </li></ul></ul></ul></ul><ul><ul><ul><li>Contingent </li></ul></ul></ul><ul><ul><ul><ul><li>Loan guarantees </li></ul></ul></ul></ul>

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