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Elements of Financial Planning PPT



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  • 1. Elements of Financial Planning Personal Finance Module Unit 2 Financial Management Lesson 2
  • 2. Why is Personal Financial Planning Important
    • 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.
  • 3. 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.
    • You would like to achieve financial independence or retire someday.
  • 4. Why Should You Develop a Personal Financial Plan?
    • To help you achieve your financial goals.
    • To help you achieve financial independence.
    • To help you understand where all your money is spent.
    • To help you support those that have supported you.
  • 5. The Personal Financial Planning Process
    • Step 1: Define Your Financial Goals
    • Step 2: Evaluate Your Current Financial Status
    • Step 3: Develop a Plan of Action
      • Consider Your Goals
    • Step 4: Implement Your Plan
    • Step 5: Review Your Progress, Reevaluate, and Revise Your Plan as Your Financial Status Changes
  • 6. Step 1: 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.
  • 7. What are the time horizons for financial goals?
    • Short-term goals can be accomplished within a 1-year period
    • Intermediate-term goals take 1-10 years to accomplish.
    • Long-term goals take more than 10 years to achieve.
  • 8. Why are goals the cornerstone of a financial plan?
    • Goals keep the future in mind by reminding you of the rewards.
    • Goals entice you to keep the plan in effect.
    • Goals provide tangibility for the question, “Why?”
  • 9. Step 2: Evaluate Your Current Financial Status
    • Your income:
    • What determines it.
    • Your expenses:
    • What determines them.
  • 10. Your Income: What Determines It
    • Earnings determine standard of living.
    • Education is the key factor in determining income level.
    • 70% of wealthy householders finished college.
  • 11. Your Expenses: What Determines Them
    • Expenses are your costs of living.
    • There are two types of expenses:
      • Fixed expenses such as rent, car payments, and day care are expenses that don’t change in amount and are usually controlled by a contract.
      • Variable (flexible) expenses, like your phone bill or the amount you spend on entertainment, are expenses over which you have control.
  • 12. Step 3: Develop a Plan of Action
    • Flexibility -- The ability for your plan to change as your situations or goals change.
    • Liquidity -- Your ability to convert non-cash assets into cash with relative ease and speed.
  • 13. Step 3: Develop a Plan (cont’d)
    • Protection -- Your ability to meet the unexpected large expenses without destroying your plan.
    • Minimization of Taxes -- Your ability to pay as little as possible to the federal government.
  • 14. Step 4: Implement Your Plan
    • Use common sense and moderation; don’t force yourself to track every penny.
    • Remain positive about your plan; don’t view your plan as a punishment.
    • Rewards await you, so don’t lose sight of why you developed the plan.
  • 15. 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.
  • 16. Summary
    • Build your financial future around a financial plan:
      • Manage the unplanned -- financial planning withstands minor setbacks.
      • Accumulate wealth -- financial planning maps out strategies for meeting your goals.
      • Save for financial independence and/or retirement -- financial planning helps you determine the costs of retirement and how much you need to save.
  • 17. Summary (cont’d)
      • “ Cover your assets” -- financial planning includes protecting your assets with insurance
      • Invest intelligently -- financial planning helps you understand the principles of investing
      • Minimize taxes -- financial planning helps you keep your assets where they should be, in your own pocket
  • 18. Summary (cont’d)
    • Define your goals – you must first know where you want to go before you can decide how to get there.
    • Evaluate your financial health – you must first know where you are before you can determine where you are going.
    • Develop a personal financial plan – you must first draw a map before you can follow it.
  • 19. Summary (cont’d)
    • Implement your plan – you must begin before you can end.
    • Review your progress – you must continue to check the map t ensure you are staying on course.