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busfac32.cob.calpoly.edu busfac32.cob.calpoly.edu Presentation Transcript

  • Chapter 1 Financial Planning: The Ties That Bind
  • The Role of Personal Financial Planning
    • To manage income and expenses
    • To create an awareness of your current financial status
    • To plan for the future by developing goals and devising ways to achieve those goals
    • To provide a system of evaluation and revision for your financial progress
  • Why Do You Need a Personal Financial Plan?
    • For most people, it is easier to spend than save
    • To track your expenses, so you don’t spend more than you think you’re spending
    • To retire someday
  • Why Should You Develop a Personal Financial Plan?
    • To achieve your financial goals
    • To achieve financial independence
    • To understand where all your money is spent
    • To support those that have supported you
  • Why Isn’t Personal Financial Planning Easy?
    • Uncomfortable discussing financial matters; the “fear of finance”
    • Motivation and time required to complete an accurate plan
    • Good record keeping
  • What Can You Accomplish as a Result of This Course?
    • Manage the unplanned
    • Accumulate wealth for special expenses
    • Save for retirement
    • “ Cover your assets”
    • Invest intelligently
    • Minimize your payments to Uncle Sam
  • The Personal Financial Planning Process
    • Step 1: Evaluate Your Financial Health
    • Step 2: Define Your Financial Goals
    • Step 3: Develop a Plan of Action
      • Flexibility, Liquidity, Protection, Minimization of Taxes
      • Consider Your Goals
    • Step 4: Implement Your Plan
    • Step 5: Review Your Progress, Reevaluate, and Revise Your Plan
  • Step 1: Evaluate Your Financial Health
    • Evaluate your current situation: income, spending, wealth
    • Assess your whole financial picture
  • Step 2: Define Your Financial Goals
    • Specifically define and write down your financial goals to reflect your financial and life situation
    • Attach a cost to each goal
    • Set a date for when the money is needed to accomplish the goal
  • What are the Time Horizons for Financial Goals?
    • Short-term goals
      • Within a 1-year period
    • Intermediate-term
      • 1-10 years to accomplish.
    • Long-term goals
      • More than 10 years to achieve.
  • Goals
    • Keep the future in mind by reminding you of the rewards
    • Entice you to keep the plan in effect
    • Provide tangibility for the question, “Why?”
  • Step 3: Develop a Plan of Action
    • Flexibility
      • Ability for your plan to change as your situations or goals change
    • Liquidity
      • Ability to convert noncash assets into cash with relative ease and speed
  • Step 3: Develop a Plan (cont’d)
    • Protection
      • Ability to meet the unexpected large expenses without destroying your plan
    • Minimization of Taxes
      • Ability to pay as little as possible to Uncle Sam
  • Step 3: Develop a Plan (cont’d)
    • Consider future needs:
      • Create a budget
      • Determine investment strategies
      • Plan for big-ticket purchases
      • Plan for managing debt
      • Plan for insurance
      • Plan for the expense of children and college
      • Plan for retirement
      • Plan for estate transfer
  • Step 4: Implement Your Plan
    • Use common sense and moderation; don’t force yourself to track every penny
    • Remain positive about your plan; use it as a roadmap
    • Stay on track after the detours; rewards await you
  • Step 5: Revise Your Plan
    • Periodically review your progress to see if any fine tuning needs to be done
    • Make sure that your plan still matches your goals
    • Be prepared to start over if your plan no longer meets your needs
  • The Life Cycle of Financial Planning
    • Stage 1:
      • The Early Years – A Time of Wealth Accumulation
    • Stage 2:
      • Approaching Retirement – The Golden Years
    • Stage 3:
      • The Retirement Years
  • Stage 1: The Early Years – A Time of Wealth Accumulation
    • Save regularly
    • Invest for the long-haul
    • Contribute to tax-deductible retirement plans
    • Create diversified stock portfolio
    • Have health & property insurance
    • If no dependents, no life insurance
  • Stage 2: Approaching Retirement – The Golden Years
    • Maximize retirement plan contributions
    • Plan for children’s education
    • Invest in stocks
    • Review life, health, & home insurance
  • Stage 3: The Retirement Years
    • Okay not to preserve all your wealth for heirs
    • Time retirement so have funds for 30 years
    • Consider part-time job
    • Don’t put all funds in fixed-income accounts
    • Consider long-term care insurance
  • The 15 Principles of Personal Finance
    • Principle 1:
      • The Risk-Return Tradeoff
    • Principle 2:
      • The Time Value of Money
    • Principle 3:
      • Diversification Reduces Risk
  • The 15 Principles of Personal Finance (cont’d)
    • Principle 4:
      • All Risk is Not Equal
    • Principle 5:
      • The Curse of Competitive Investment Markets
    • Principle 6:
      • Taxes Affect Personal Finance Decisions
  • The 15 Principles of Personal Finance (cont’d)
    • Principle 7:
      • Stuff Happens, or The Importance of Liquidity
    • Principle 8:
      • Nothing Happens Without a Plan
    • Principle 9:
      • The Best Protection is Knowledge
  • The 15 Principles of Personal Finance (cont’d)
    • Principle 10:
      • Protect Yourself Against Major Catastrophes
    • Principle 11:
      • The Time Dimension of Investing
    • Principle 12:
      • The Agency Problem – Beware of the Sales Pitch
  • The 15 Principles of Personal Finance (cont’d)
    • Principle 13:
      • Pay Yourself First
    • Principle 14:
      • Money Isn’t Everything
    • Principle 15:
      • Just Do It!