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  • 1. Chapter 1 Overview of a Financial Plan
  • 2. 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
  • 3. 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
  • 4. Definitions
    • Opportunity cost: what you give up as a result of a decision
  • 5. 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
  • 6. 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
  • 7. 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
  • 8. Budgeting and Tax Planning Exhibit 1.1: How a Budget Affects Savings
  • 9. 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
  • 10. 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
  • 11. Managing Your Liquidity Exhibit 1.2: Managing Your Liquidity
  • 12. 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
  • 13. Financing Your Large Purchases Exhibit 1.3: Financing Process
  • 14. 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
  • 15. 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
  • 16. Components of Your Financial Plan Exhibit 1.4: Components of Your Financial Plan
  • 17. 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
  • 18. 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
  • 19. 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
  • 20. How Financial Planning Relates to Cash Flow Exhibit 1.6: How Financial Planning Affects Your Cash Flows
  • 21. 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)
  • 22. 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
  • 23. Developing the Financial Plan
  • 24. Developing the Financial Plan
  • 25. 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
  • 26. 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
  • 27. 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
  • 28. 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
  • 29. 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
  • 30. How the Internet Facilitates Financial Planning 1.1 Financial Planning Online: Should You Pursue a Career in Financial Planning?
  • 31. 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.
  • 32. Integrating Key Concepts
  • 33. 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