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Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
Personal Financial Planning
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Personal Financial Planning

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  • 1. PERSONAL FINANCIAL PLANNING When Should You Start? M. Piczak January 2006
  • 2. WHY A PERSONAL FINANCIAL PLAN? <ul><li>As an employer, no one else does it for you </li></ul><ul><li>Need retirement income </li></ul><ul><li>Help choose your priorities between home, vehicles, vacation property, children’s education, travel, early retirement </li></ul><ul><li>Pay less income tax </li></ul>
  • 3. THE STEPS TO DEVELOPING YOUR PERSONAL FINANCIAL PLAN <ul><li>Evaluate your personal, current financial situation </li></ul><ul><ul><li>Estimate current net worth </li></ul></ul><ul><ul><li>Estimate income from all sources </li></ul></ul><ul><ul><li>List all recurring expenses </li></ul></ul>
  • 4. <ul><li>2. Choose financial goals. </li></ul><ul><li>Time frames are important </li></ul><ul><li>Separate wants from needs </li></ul>THE STEPS TO DEVELOPING YOUR PERSONAL FINANCIAL PLAN
  • 5. <ul><li>3. Develop saving/investment strategy </li></ul><ul><li>For desired retirement income </li></ul><ul><li>For goals between now & retirement </li></ul><ul><li>Make assumptions regarding income and expenditures over future years </li></ul><ul><li>Identify alternative “action plans” (contingency planning) </li></ul>THE STEPS TO DEVELOPING YOUR PERSONAL FINANCIAL PLAN
  • 6. <ul><li>4. Evaluate alternative action plans considering: </li></ul><ul><li>Economic & employment factors </li></ul><ul><li>Risk factors – financial & other </li></ul><ul><li>Opportunity costs </li></ul><ul><li>Lifestyle choices </li></ul><ul><li>Your values </li></ul><ul><li>Family situation </li></ul>THE STEPS TO DEVELOPING YOUR PERSONAL FINANCIAL PLAN
  • 7. <ul><li>5. Develop your plan by: </li></ul><ul><li>Choosing from alternatives </li></ul><ul><li>Using professional advice </li></ul><ul><li>Remember the family life cycle </li></ul><ul><li>Ensure you have a wise budget </li></ul><ul><li>Remember tax considerations </li></ul>THE STEPS TO DEVELOPING YOUR PERSONAL FINANCIAL PLAN
  • 8. <ul><li>6. Implement by: </li></ul><ul><li>Evaluating periodically </li></ul><ul><li>Changing your plans as needs change </li></ul><ul><li>Changing as external factors change </li></ul><ul><li>Focus on goals </li></ul>THE STEPS TO DEVELOPING YOUR PERSONAL FINANCIAL PLAN
  • 9. WEALTH CREATION IN OUR CAPITALISTIC SOCIETY <ul><li>Creation of wealth is encouraged so that individuals take care of themselves rather than by the state </li></ul><ul><li>System is designed to “control” the rate of wealth creation to promote stability and induce hard work and risk taking </li></ul>
  • 10. WHAT YOU CAN DO WITH YOUR $ <ul><li>4 options exist: </li></ul><ul><ul><li>Spend it – it’s gone forever </li></ul></ul><ul><ul><li>Give it away – you feel better but it’s also gone for good </li></ul></ul><ul><ul><li>Bury it – you’ve outsmarted the tax man but lowered your worth because of inflation </li></ul></ul><ul><ul><li>Invest it – participating in the power of the time value of money (interest and capital appreciation) </li></ul></ul>
  • 11. THE TIME VALUE OF MONEY <ul><li>Money grows according to the force of interest </li></ul><ul><li>Future Value = P(1 + i) n </li></ul><ul><li>Interest is paid on interest resulting in a power function </li></ul><ul><li>Consider that $1,000 invested annually into an RRSP accumulating beyond the reach of CCRA will grow to $1.5 million depending on the interest rate used </li></ul><ul><li>Remember, that it will be taxable when drawn out at retirement although at a lower rate of tax </li></ul>
  • 12. GETTING TO $1,000,000 <ul><li>Contrary to easy jokes, $1 million is still some serious money </li></ul><ul><li>How much money must be invested to get to the magic $1 million? </li></ul><ul><li>The answer is:_________________ </li></ul>
  • 13. DEPENDS… <ul><li>Depends on: </li></ul><ul><li>A. Investment return assumptions </li></ul><ul><li>B. Amount contributed </li></ul><ul><li>C. Time involved </li></ul><ul><li>Consider the following piece: </li></ul><ul><li>Future Value Calculations: Getting to $1,000,000 </li></ul>
  • 14. INCOME SOURCES <ul><li>Salaries </li></ul><ul><li>Employment insurance benefits </li></ul><ul><li>Self employed income </li></ul><ul><li>Business income </li></ul><ul><li>Rental income </li></ul><ul><li>Pension income </li></ul><ul><li>Interest and investment earnings </li></ul><ul><li>Inheritances </li></ul><ul><li>Unexpected windfalls </li></ul>
  • 15. ITEMIZE YOUR EXPENSES <ul><li>Food </li></ul><ul><li>Shelter </li></ul><ul><li>Car </li></ul><ul><li>Children </li></ul><ul><li>Medical care </li></ul><ul><li>Meals outside the home </li></ul><ul><li>Entertainment </li></ul><ul><li>Travel </li></ul><ul><li>Beer </li></ul>
  • 16. WHEN TO START? <ul><li>NOW! </li></ul>
  • 17. EASY INVESTMENT OPTIONS <ul><li>Starting an RRSP and making regular contributions </li></ul><ul><li>Do what Esther Pauls did…get off your lease, purchase the building reducing your present costs and owning the building after 7 years </li></ul><ul><li>Starting up a mutual fund of your own </li></ul><ul><li>“ Play” with stocks on e-trader sites limiting yourself to a particular sum </li></ul><ul><li>Buy a house (appreciates tax free for your principal residence) </li></ul><ul><li>Do “forced” savings using CSBs and then investing it at the end of the year in some other investment instrument </li></ul>
  • 18. DEVELOP MULTIPLE INCOME STREAMS <ul><li>Rent </li></ul><ul><li>Residual income streams </li></ul><ul><li>Having several activities that generate income simultaneously </li></ul>
  • 19. CONTROLLING YOUR SPENDING <ul><li>Budget and stick to it </li></ul><ul><li>Learn to say no </li></ul><ul><li>Don’t have too many credit cards </li></ul><ul><li>Use a line of credit </li></ul><ul><li>Stop impulse buying </li></ul><ul><li>“ do you really need it?” </li></ul><ul><li>Don’t go shopping </li></ul><ul><li>Control dining out </li></ul><ul><li>Don’t carry cash </li></ul><ul><li>Pay down debt ASAP so you can do other things </li></ul>
  • 20. CUT DOWN AND SAVE BIG OVER A LIFETIME <ul><li>How much money is generated by cutting down on: </li></ul><ul><ul><li>Taking own lunch 3 days/week </li></ul></ul><ul><ul><ul><ul><li>= $95,000 </li></ul></ul></ul></ul><ul><ul><li>Buying bottled water $3/dozen bottles rather than at convenience store at $1/bottle </li></ul></ul><ul><ul><ul><ul><li>= $57,000 </li></ul></ul></ul></ul><ul><ul><li>Park car, take bus </li></ul></ul><ul><ul><ul><ul><li>= $110,000 </li></ul></ul></ul></ul><ul><ul><ul><ul><li>=SUM TOTAL > $260,000 </li></ul></ul></ul></ul><ul><ul><li>(See Spec article Jan. 27, 2006) </li></ul></ul>
  • 21. THAT’S ALL THERE IS TO IT… <ul><li>Decide what you want </li></ul><ul><li>Look at where you are now </li></ul><ul><li>Establish your priorities </li></ul><ul><li>Cut down your spending </li></ul><ul><li>Make the investment/saving commitment </li></ul><ul><li>Go relax in the sun </li></ul>
  • 22. THE ANSWER TO OUR SKILL TESTING QUESTION: WHEN SHOULD YOU START? <ul><li>START NOW WHEN YOU ARE YOUNG TO PUT TIME ON YOUR </li></ul><ul><li>SIDE </li></ul>
  • 23. PERSONAL FINANCIAL PLANNING M. Piczak January 2006 THE END

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