Personal Financial Management Workshop

1,421 views
1,162 views

Published on

0 Comments
4 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
1,421
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
73
Comments
0
Likes
4
Embeds 0
No embeds

No notes for slide

Personal Financial Management Workshop

  1. 1. Personal Financial Management Workshop UNC School of Public Health Ben Birken Woodward Financial Advisors
  2. 2. What is financial planning? <ul><li>Financial planning is a process that brings financial goals into focus and creates a road map for achieving those goals. </li></ul>
  3. 3. The Financial Planning Process <ul><li>Gather and organize information </li></ul><ul><li>Clarify goals and understand financial attitudes </li></ul><ul><li>Analyze problems and opportunities </li></ul><ul><li>Evaluate recommendations and alternatives </li></ul><ul><li>Implement financial decisions </li></ul><ul><li>Monitor results and make adjustments, if necessary </li></ul>
  4. 4. What isn’t financial planning? <ul><li>Identifying the next hot stock and becoming rich overnight </li></ul><ul><li>Financial planning ≠ investing </li></ul><ul><ul><li>Investments are just one component of financial planning </li></ul></ul><ul><ul><li>Ideally, investment design comes last in the planning process </li></ul></ul>
  5. 5. Elements of Financial Planning Investment Design COMPREHENSIVE FINANCIAL PLANNING Insurance Planning – Risk Assessment Estate/Legacy Planning Tax Planning Cash Flow and Budgeting Financial Analysis: Statement of Financial Condition
  6. 6. Statement of Financial Condition <ul><li>Assets: what you own </li></ul><ul><li>Liabilities: what you owe </li></ul><ul><li>Net worth = Assets – Liabilities </li></ul><ul><li>What is missing from the net worth statement? </li></ul>
  7. 7. Elements of Financial Planning Investment Design COMPREHENSIVE FINANCIAL PLANNING Insurance Planning – Risk Assessment Estate/Legacy Planning Tax Planning Cash Flow and Budgeting Financial Analysis: Statement of Financial Condition
  8. 8. Types of Risk Liability Health Injury Mortality Income Market Longevity Purchasing Power RISK
  9. 9. Insurable Risks <ul><li>Liability risk: Liability insurance </li></ul><ul><ul><li>Auto; Home </li></ul></ul><ul><li>Injury Risk: Disability insurance </li></ul><ul><ul><li>Can be an employee benefit; private policies also available </li></ul></ul><ul><ul><ul><li>Short-term : almost exclusively available as employment benefit </li></ul></ul></ul><ul><ul><ul><li>Long-term </li></ul></ul></ul><ul><li>Medical risk: Health, dental, vision insurance </li></ul><ul><li>Mortality risk: Life insurance </li></ul><ul><ul><li>Who needs life insurance? </li></ul></ul><ul><ul><li>What kinds of life insurance are available? </li></ul></ul><ul><ul><ul><li>Term insurance: Private; Group (usually an employment benefit) </li></ul></ul></ul><ul><ul><ul><li>Whole life insurance: usually more expensive </li></ul></ul></ul>
  10. 10. “ Uninsurable” risk <ul><li>Income risk: Job loss </li></ul><ul><li>Market risk: Market fluctuations </li></ul><ul><li>Purchasing power risk: Inflation </li></ul><ul><li>Longevity risk: Outliving your money </li></ul><ul><li>“ Emergency” risk: Auto/home repair, unexpected events </li></ul>You have to become the self-insurer for the “uninsurable” risk!
  11. 11. Self-insuring steps <ul><li>Budgeting </li></ul><ul><li>Debt reduction and avoidance </li></ul><ul><li>“ Emergency fund” </li></ul><ul><li>Aggressive savings </li></ul><ul><li>Modest expectations </li></ul><ul><li>Flexibility and adaptability </li></ul>
  12. 12. Elements of Financial Planning Investment Design COMPREHENSIVE FINANCIAL PLANNING Insurance Planning – Risk Assessment Estate/Legacy Planning Tax Planning Cash Flow and Budgeting Financial Analysis: Statement of Financial Condition
  13. 13. Cash Flow: The Key to Financial Independence <ul><li>Net worth statement = static; cross-sectional </li></ul><ul><li>Cash Flow = dynamic; longitudinal </li></ul><ul><ul><li>Income (money in) </li></ul></ul><ul><ul><ul><li>Wages </li></ul></ul></ul><ul><ul><ul><li>Business income </li></ul></ul></ul><ul><ul><ul><li>Dividends and interest </li></ul></ul></ul><ul><ul><li>Expenses (money out) </li></ul></ul><ul><ul><ul><li>Mandatory (fixed) </li></ul></ul></ul><ul><ul><ul><li>Mandatory (flexible) </li></ul></ul></ul><ul><ul><ul><li>Discretionary </li></ul></ul></ul>
  14. 14. Mandatory Expenses <ul><li>Fixed </li></ul><ul><ul><li>Housing: rent, mortgage </li></ul></ul><ul><ul><li>Insurance </li></ul></ul><ul><ul><li>Medical </li></ul></ul><ul><ul><li>Debt payments: auto loan, student loan, credit cards? </li></ul></ul><ul><ul><li>Tuition and fees </li></ul></ul><ul><ul><li>Taxes? </li></ul></ul><ul><li>Flexible </li></ul><ul><ul><li>Utilities: electricity, water, gas, water, phone, etc. </li></ul></ul><ul><ul><li>Food </li></ul></ul><ul><ul><li>Clothing </li></ul></ul><ul><ul><li>Transportation </li></ul></ul><ul><ul><li>Savings </li></ul></ul>
  15. 15. Discretionary Expenses <ul><li>Everything else! </li></ul><ul><ul><li>Entertainment: movies, cable, Netflix </li></ul></ul><ul><ul><li>Dining out </li></ul></ul><ul><ul><li>Gym membership </li></ul></ul><ul><ul><li>Magazine subscriptions </li></ul></ul><ul><ul><li>Travel </li></ul></ul><ul><ul><li>Alcohol </li></ul></ul><ul><ul><li>Gifts </li></ul></ul><ul><ul><li>Trinkets, gizmos, gadgets and “stuff” </li></ul></ul>
  16. 16. Cash Flow: Putting it All Together
  17. 17. Budgeting <ul><li>Where did the money go? </li></ul><ul><ul><li>Reconstruct previous spending, or start tracking current spending </li></ul></ul><ul><ul><li>Be consistent with categorization </li></ul></ul><ul><ul><li>Prioritize and plan future spending </li></ul></ul><ul><ul><li>Monitor and make changes, as necessary </li></ul></ul><ul><ul><li>Don’t forget to spend on yourself, and don’t beat yourself up over mistakes </li></ul></ul>Spending Plan
  18. 18. Spending Plan: Prioritize! <ul><li>Debt reduction </li></ul><ul><li>Establish an emergency fund </li></ul><ul><li>Start saving for retirement now </li></ul><ul><li>Evaluate and prioritize discretionary spending based on your goals and values </li></ul><ul><ul><li>First/next home? </li></ul></ul><ul><ul><li>Travel plans? </li></ul></ul><ul><ul><li>The latest “it” thing </li></ul></ul>
  19. 19. Debt Reduction <ul><li>“ Good” debt vs. “bad” debt </li></ul><ul><li>“ Good” debt finances appreciating assets </li></ul><ul><ul><li>Interest is usually tax deductible </li></ul></ul><ul><ul><li>Prudent use of mortgages for housing </li></ul></ul><ul><ul><li>Student loans: increasing your human capital </li></ul></ul><ul><li>“ Bad” debt finances depreciating assets </li></ul><ul><ul><li>Interest is not tax deductible </li></ul></ul><ul><ul><li>Consumer debt: credit cards! </li></ul></ul><ul><ul><li>Paying this down is a “guaranteed” return </li></ul></ul>
  20. 20. Student Loans <ul><li>Up to $2500 in interest is tax deductible </li></ul><ul><li>Federal loans can have flexible repayment schedules </li></ul><ul><ul><li>Standard = 10 years </li></ul></ul><ul><ul><li>Extended = up to 30 years </li></ul></ul><ul><ul><li>Postponement options: deferment and forbearance </li></ul></ul><ul><li>Some employers will help pay off your student loan </li></ul><ul><li>Consolidate to lock in a lower fixed rate </li></ul>
  21. 21. Emergency Fund <ul><li>How much? </li></ul><ul><li>Appropriate vehicle? </li></ul><ul><ul><li>Low-cost mutual fund </li></ul></ul><ul><ul><li>Online savings account </li></ul></ul><ul><ul><li>Checking account </li></ul></ul><ul><ul><li>Money-market fund </li></ul></ul><ul><ul><li>12-month Certificate of Deposit (CD) </li></ul></ul>
  22. 22. Saving for Retirement Now <ul><li>Why save at all? </li></ul><ul><ul><li>Retirement ain’t what it used to be </li></ul></ul><ul><li>Why start now? </li></ul><ul><ul><li>The savings puzzle </li></ul></ul><ul><li>Ok, how do I start? </li></ul><ul><ul><li>Workplace retirement plans (401k, 403b) </li></ul></ul><ul><ul><li>Individual Retirement Accounts (IRAs) </li></ul></ul><ul><ul><ul><li>Traditional </li></ul></ul></ul><ul><ul><ul><li>Roth </li></ul></ul></ul><ul><ul><li>Taxable accounts </li></ul></ul>
  23. 23. Elements of Financial Planning Investment Design COMPREHENSIVE FINANCIAL PLANNING Insurance Planning – Risk Assessment Estate/Legacy Planning Tax Planning Cash Flow and Budgeting Financial Analysis: Statement of Financial Condition
  24. 24. Investing: Important Terms <ul><li>Return: performance </li></ul><ul><li>Risk: variability of return; fluctuation in value </li></ul><ul><li>Inflation </li></ul><ul><li>Basic asset classes </li></ul><ul><ul><li>Cash </li></ul></ul><ul><ul><li>Bonds/Fixed Income: debt </li></ul></ul><ul><ul><li>Stocks: ownership </li></ul></ul><ul><ul><li>“ Real” assets: real estate, commodities </li></ul></ul><ul><li>Asset allocation </li></ul><ul><li>Mutual Funds </li></ul>
  25. 25. Investing Basics <ul><li>Avoid the noise </li></ul><ul><li>Have a long-term perspective, but also have moderate expectations </li></ul>
  26. 26. Investing Basics <ul><li>Understand the relationship between risk and return </li></ul><ul><li>A diversified portfolio does not prevent loss, but it can reduce overall risk </li></ul><ul><li>The economy and the stock market are both a mess…why invest now? </li></ul>
  27. 27. Seeking Professional Advice <ul><li>Who can call themselves financial planners? </li></ul><ul><ul><li>Just about anyone! </li></ul></ul><ul><ul><ul><li>Stockbrokers </li></ul></ul></ul><ul><ul><ul><li>Insurance salespeople </li></ul></ul></ul><ul><ul><ul><li>Attorneys </li></ul></ul></ul><ul><ul><ul><li>Accountants </li></ul></ul></ul><ul><li>Who can you trust? </li></ul><ul><ul><li>Someone whose interests are aligned with yours </li></ul></ul><ul><ul><li>Fiduciary responsibility </li></ul></ul><ul><ul><li>Objective perspective: Fee-only, Independent </li></ul></ul>

×