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    PowerPoint Presentation PowerPoint Presentation Presentation Transcript

    • Chapter 1 Overview of a Financial Plan
    • Chapter Objectives
      • Introduce the subject of personal finance
      • Identify the key components of a financial plan
      • Outline the steps involved in developing your financial plan
    • Definitions
      • Personal finance: the process of planning your spending, financing, and investing so as to optimize your financial situation
      • Personal financial plan: a plan that specifies your financial goals and describes the spending, financing, and investing plans that are intended to achieve those goals
    • Definitions
      • Opportunity cost: what you give up as a result of a decision
    • How You Benefit From An Understanding of Personal Finance
      • Make your own financial decisions
        • Every spending decision has an opportunity cost
      • Judge the advice of financial advisors
        • Make informed decisions
      • Become a financial advisor
        • Many career opportunities available
    • Components of a Financial Plan
      • Budgeting and tax planning
      • Managing your liquidity
      • Financing your large purchases
      • Protecting your assets and income (insurance)
      • Investing your money
      • Planning your retirement and estate
    • A Plan for Your Budgeting and Tax Planning
      • Budget planning: The process of forecasting future expenses and savings
      • Evaluate your current financial position
        • Assets: what you own
        • Liabilities: what you owe
        • Net worth: the value of what you own minus the value of what you owe
    • Budgeting and Tax Planning Exhibit 1.1: How a Budget Affects Savings
    • A Plan to Manage Your Liquidity
      • Liquidity: access to funds to cover any short-term cash deficiencies
      • Money management: decisions regarding how much money to retain in a liquid form and how to allocate the funds among short-term investment instruments
    • A Plan to Manage Your Liquidity
      • Credit management: decisions regarding how much credit to obtain to support your spending and which sources of credit to use
    • Managing Your Liquidity Exhibit 1.2: Managing Your Liquidity
    • A Plan for Your Financing
      • Loans often needed for large expenditures
        • College tuition, car, house
      • Managing loans
        • How much can you afford to borrow?
        • Determining maturity of the loan
        • Selecting a loan with a competitive interest rate
    • Financing Your Large Purchases Exhibit 1.3: Financing Process
    • A Plan for Your Investing
      • Funds not needed for liquidity can be invested
        • Stocks, bonds, mutual funds, real estate
      • All investments have some level of risk
      • Risk: uncertainty surrounding the potential return on an investment
    • A Plan for Your Retirement and Estate
      • This includes insurance planning, retirement planning, and estate planning
        • Retirement planning: determining how much money should be set aside each year for retirement and how those funds should be invested
        • Estate planning: determining how your wealth will be distributed before or upon your death
    • Components of Your Financial Plan Exhibit 1.4: Components of Your Financial Plan
    • How the Text Organization Relates to the Financial Plan’s Components
      • Each of the six parts of the text covers one specific component of the financial plan
      • An effective financial plan enhances net worth and builds wealth
      • Follow the steps to a complete financial plan at the end of the school term
    • How the Text Organization Relates to the Financial Plan’s Components
      • How the components relate to your cash flows
        • Cash inflows are cash that you receive
        • Cash outflows are cash that you spend
        • Budgeting balances income and spending
        • Liquidity deals with cash excesses or shortages
    • How the Text Organization Relates to the Financial Plan’s Components
        • Financing focuses on obtaining cash for large purchases or repaying loans
        • Protect assets and income by using cash for insurance and retirement
        • Investing uses cash to build wealth
    • How Financial Planning Relates to Cash Flow Exhibit 1.6: How Financial Planning Affects Your Cash Flows
    • Developing the Financial Plan
      • Step 1. Establish Your Financial Goals
        • Types of goals
          • Car, home, college, wealth, charity
        • Set realistic goals
          • Stronger likelihood of reaching goals
        • Timing of goals
          • Short term (within one year)
          • Intermediate (between 1–5 years)
          • Long term (beyond five years)
    • Developing the Financial Plan
      • Step 2. Consider Your Current Financial Position
        • How your future financial position is tied to your education
          • Consider your skills, interests, and career paths
        • How your future financial position is tied to your career choice
          • Choose a career that will be enjoyable and suit your skills
    • Developing the Financial Plan
    • Developing the Financial Plan
    • Developing the Financial Plan
      • Step 3. Identify and Evaluate Alternative Plans That Could Achieve Your Goals
        • Plans could be conservative or aggressive
      • Step 4. Select and Implement the Best Plan for Achieving Your Goals
        • The Internet has valuable financial planning information
    • Developing the Financial Plan
      • Focus on Ethics: Personal Financial Advice
        • Your objective is to get the best advice appropriate to your needs
        • Be wary of unethical behavior
          • Difficult to discern
        • Be wary of incompetent advice
          • Be alert, ask questions, carefully consider advice
    • Developing the Financial Plan
      • Step 5. Evaluate Your Financial Plan
        • Keep plan in an accessible place and monitor your progress
      • Step 6. Revise Your Financial Plan
        • Change plan as financial condition and financial goals change
    • How the Internet Facilitates Financial Planning
      • The Internet provides information on all aspects of financial planning
        • Bank deposit rates
        • Prices of cars and homes
        • Financing rates
        • Prices of investments
        • Insurance premiums
    • How the Internet Facilitates Financial Planning
      • Provides updated information on all parts of your financial plan
        • Current tax rates and regulations
        • Investment performances
        • Online calculators
    • How the Internet Facilitates Financial Planning 1.1 Financial Planning Online: Should You Pursue a Career in Financial Planning?
    • Financial Planning Online: Financial Planning Tools for You
      • Go to http:// finance.yahoo.com
      • This website provides much information and many tools that can be used for all aspects of financial planning.
      • It also provides information for creating retirement plans and wills.
    • Integrating Key Concepts
    • Looking Ahead
      • Part 1: Financial Planning Tools
        • Chapter 1 showed an overview of a financial plan
        • Chapter 2 teaches personal financial statements
        • Chapter 3 teaches time value of money
        • Chapter 4 teaches tax planning
      • Part 2: Liquidity Management
      • Part 3: Financing
      • Part 4: Protecting Your Wealth
      • Part 5: Investing
      • Part 6: Retirement and Estate Planning