Personal Finance Course Overview MBA. Juan José Salas M. México 2009

Course Overview Give you the skills to responsibly manage your money Today, personal bankruptcies are out of control Personal Debt is at an all-time high Give you perspective on how money and work should affect your life People are more than just their jobs and possessions

Give you the skills to responsibly manage your money

Today, personal bankruptcies are out of control

Personal Debt is at an all-time high

Give you perspective on how money and work should affect your life

People are more than just their jobs and possessions

Course Overview Main Topics Your Goals in Life Setting Financial Goals Maximizing Income Minimizing Expenses Maximizing Assets Minimizing Liabilities A Planning Approach Determining Net Worth Reflecting on what it all means

Main Topics

Your Goals in Life

Setting Financial Goals

Maximizing Income

Minimizing Expenses

Maximizing Assets

Minimizing Liabilities

A Planning Approach

Determining Net Worth

Reflecting on what it all means

Your Goals in Life Nonfinancial goals Family, children, education, religious, social, etc. Finances can affect your ability to attain these goals. Financial goals Financial independence is an important goal for many people. Financial independence is defined as having enough income or resources to be self-reliant. One of the financial choices that we make is between consumption today versus consumption in the future.

Nonfinancial goals

Family, children, education, religious, social, etc.

Finances can affect your ability to attain these goals.

Financial goals

Financial independence is an important goal for many people. Financial independence is defined as having enough income or resources to be self-reliant.

One of the financial choices that we make is between consumption today versus consumption in the future.

Your Goals in Life Researchers have found that most people, regardless of their income level, feel that they need 20% more wealth than they currently have.

Researchers have found that most people, regardless of their income level, feel that they need 20% more wealth than they currently have.

Setting Financial Goals If you don’t know where your going, it doesn’t matter which way you go Cheshire Cat from Alice In Wonderland Set up a process now to set goals Then review them at least annually to see if you are where you want to be

If you don’t know where your going, it doesn’t matter which way you go

Cheshire Cat from Alice In Wonderland

Set up a process now to set goals

Then review them at least annually to see if you are where you want to be

Maximizing Income “ You only have so much time on earth, you should make the most of every moment. However, you need to balance your needs against the needs of others Your retirement age and income depend on how well you do

“ You only have so much time on earth, you should make the most of every moment.

However, you need to balance your needs against the needs of others

Your retirement age and income depend on how well you do

Minimizing Expenses If you spend more than you make, then you will end up in debt. This seems so simple So why are so many Americans on the verge of bankruptcy? We have to learn how to control our spending

If you spend more than you make, then you will end up in debt.

This seems so simple

So why are so many Americans on the verge of bankruptcy?

We have to learn how to control our spending

Maximizing Assets In today’s world you have to be able to take care of your own investments Very few people will receive pensions where their employers make all their investment decisions for them You will probably have to make your own investment decisions

In today’s world you have to be able to take care of your own investments

Very few people will receive pensions where their employers make all their investment decisions for them

You will probably have to make your own investment decisions

Minimizing Liabilities There is good debt and bad debt Taking out loans to buy things that increase in value (like a house) or will let you earn more income (like an education loan) creates good debt Taking out a loan to pay for vacations or stereos creates bad debt You also need to know the basics of insurance so unexpected events do not drive you into bankruptcy

There is good debt and bad debt

Taking out loans to buy things that increase in value (like a house) or will let you earn more income (like an education loan) creates good debt

Taking out a loan to pay for vacations or stereos creates bad debt

You also need to know the basics of insurance so unexpected events do not drive you into bankruptcy

Major Financial Planning Areas Consumption and Savings Planning Debt Planning Insurance Planning Investment Planning Retirement Planning Estate Planning Income Tax Planning Career Planning

Consumption and Savings Planning

Debt Planning

Insurance Planning

Investment Planning

Retirement Planning

Estate Planning

Income Tax Planning

Career Planning

A planning approach Step 1. Determine concrete goals. First state your broad goal such as the purchase of a home. Determine the specific pieces to achieve that goal such as the cost of the house, the down payment amount, etc. Step 2. Create an action plan. How will you achieve the goals stated in step 1? How much will you save each month and where will the money be invested?

Step 1. Determine concrete goals.

First state your broad goal such as the purchase of a home.

Determine the specific pieces to achieve that goal such as the cost of the house, the down payment amount, etc.

Step 2. Create an action plan.

How will you achieve the goals stated in step 1? How much will you save each month and where will the money be invested?

A planning approach Step 3. Evaluate performance. At least annually, evaluate steps 1 and 2 to determine if any adjustments should be made in the action plan or goals. Step 4. Decide on a future course of action. Is your goal realistic or should it be reevaluated?

Step 3. Evaluate performance.

At least annually, evaluate steps 1 and 2 to determine if any adjustments should be made in the action plan or goals.

Step 4. Decide on a future course of action.

Is your goal realistic or should it be reevaluated?

Life-Cycle Financial Planning (assumes children/marriage) Life-Cycle Phases Financial Planning Areas Young adult (18 – 25) Consumption and savings; career Family formation (26 – 35) Consumption and savings; career; debt; insurance; income taxes Family development (36 – 49) Investment; retirement; income taxes Family maturity (50 – 60) Investment; retirement; estate Retirement (60 – ?) Estate; income taxes

Determining Net Worth Net Worth = Assets – Liabilities If you have more assets than liabilities, then you have a positive net worth If you have more liabilities than assets, then you are in debt When your income is greater than your expenses you add to your net worth Vice versa when your expenses exceed your income We need to remind ourselves that financial net worth is not the same as your actual net worth

Net Worth = Assets – Liabilities

If you have more assets than liabilities, then you have a positive net worth

If you have more liabilities than assets, then you are in debt

When your income is greater than your expenses you add to your net worth

Vice versa when your expenses exceed your income

We need to remind ourselves that financial net worth is not the same as your actual net worth

Reflecting on what it all means We should never lose track of the fact that personal finance is just a means to an end Who we are as a person is not measured by our income or our balance sheet

We should never lose track of the fact that personal finance is just a means to an end

Who we are as a person is not measured by our income or our balance sheet

Discussion Questions What are some of the benefits of personal financial planning? How do economic cycles affect the personal financial planning process? What is meant by life-cycle financial planning? Explain marginal analysis and its importance to financial decision making. Opportunity cost is a very important concept in financial decision making. Can you think of an example of opportunity cost in your financial planning?

What are some of the benefits of personal financial planning?

How do economic cycles affect the personal financial planning process?

What is meant by life-cycle financial planning?

Explain marginal analysis and its importance to financial decision making.

Opportunity cost is a very important concept in financial decision making. Can you think of an example of opportunity cost in your financial planning?

Please contact: MBA. Juan José Salas M. [email_address]

MBA. Juan José Salas M.

[email_address]