Elements of Financial Planning PPT


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Elements of Financial Planning PPT

  1. 1. Elements of Financial Planning Personal Finance Module Unit 2 Financial Management Lesson 2
  2. 2. Why is Personal Financial Planning Important <ul><li>To manage income and expenses. </li></ul><ul><li>To create an awareness of your current financial status. </li></ul><ul><li>To plan for the future by developing goals and devising ways to achieve those goals. </li></ul><ul><li>To provide a system of evaluation and revision for your financial progress. </li></ul>
  3. 3. Why Do You Need a Personal Financial Plan? <ul><li>For most people it is easier to spend than save. </li></ul><ul><li>To track your expenses, so you don’t spend more than you think you’re spending. </li></ul><ul><li>You would like to achieve financial independence or retire someday. </li></ul>
  4. 4. Why Should You Develop a Personal Financial Plan? <ul><li>To help you achieve your financial goals. </li></ul><ul><li>To help you achieve financial independence. </li></ul><ul><li>To help you understand where all your money is spent. </li></ul><ul><li>To help you support those that have supported you. </li></ul>
  5. 5. The Personal Financial Planning Process <ul><li>Step 1: Define Your Financial Goals </li></ul><ul><li>Step 2: Evaluate Your Current Financial Status </li></ul><ul><li>Step 3: Develop a Plan of Action </li></ul><ul><ul><li>Consider Your Goals </li></ul></ul><ul><li>Step 4: Implement Your Plan </li></ul><ul><li>Step 5: Review Your Progress, Reevaluate, and Revise Your Plan as Your Financial Status Changes </li></ul>
  6. 6. Step 1: Define Your Financial Goals <ul><li>Specifically define and write down your financial goals to reflect your financial and life situation. </li></ul><ul><li>Attach a cost to each goal. </li></ul><ul><li>Set a date for when the money is needed to accomplish the goal. </li></ul>
  7. 7. What are the time horizons for financial goals? <ul><li>Short-term goals can be accomplished within a 1-year period </li></ul><ul><li>Intermediate-term goals take 1-10 years to accomplish. </li></ul><ul><li>Long-term goals take more than 10 years to achieve. </li></ul>
  8. 8. Why are goals the cornerstone of a financial plan? <ul><li>Goals keep the future in mind by reminding you of the rewards. </li></ul><ul><li>Goals entice you to keep the plan in effect. </li></ul><ul><li>Goals provide tangibility for the question, “Why?” </li></ul>
  9. 9. Step 2: Evaluate Your Current Financial Status <ul><li>Your income: </li></ul><ul><li>What determines it. </li></ul><ul><li>Your expenses: </li></ul><ul><li>What determines them. </li></ul>
  10. 10. Your Income: What Determines It <ul><li>Earnings determine standard of living. </li></ul><ul><li>Education is the key factor in determining income level. </li></ul><ul><li>70% of wealthy householders finished college. </li></ul>
  11. 11. Your Expenses: What Determines Them <ul><li>Expenses are your costs of living. </li></ul><ul><li>There are two types of expenses: </li></ul><ul><ul><li>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. </li></ul></ul><ul><ul><li>Variable (flexible) expenses, like your phone bill or the amount you spend on entertainment, are expenses over which you have control. </li></ul></ul>
  12. 12. Step 3: Develop a Plan of Action <ul><li>Flexibility -- The ability for your plan to change as your situations or goals change. </li></ul><ul><li>Liquidity -- Your ability to convert non-cash assets into cash with relative ease and speed. </li></ul>
  13. 13. Step 3: Develop a Plan (cont’d) <ul><li>Protection -- Your ability to meet the unexpected large expenses without destroying your plan. </li></ul><ul><li>Minimization of Taxes -- Your ability to pay as little as possible to the federal government. </li></ul>
  14. 14. Step 4: Implement Your Plan <ul><li>Use common sense and moderation; don’t force yourself to track every penny. </li></ul><ul><li>Remain positive about your plan; don’t view your plan as a punishment. </li></ul><ul><li>Rewards await you, so don’t lose sight of why you developed the plan. </li></ul>
  15. 15. Step 5: Revise Your Plan <ul><li>Periodically review your progress to see if any fine tuning needs to be done. </li></ul><ul><li>Make sure that your plan still matches your goals. </li></ul><ul><li>Be prepared to start over if your plan no longer meets your needs. </li></ul>
  16. 16. Summary <ul><li>Build your financial future around a financial plan: </li></ul><ul><ul><li>Manage the unplanned -- financial planning withstands minor setbacks. </li></ul></ul><ul><ul><li>Accumulate wealth -- financial planning maps out strategies for meeting your goals. </li></ul></ul><ul><ul><li>Save for financial independence and/or retirement -- financial planning helps you determine the costs of retirement and how much you need to save. </li></ul></ul>
  17. 17. Summary (cont’d) <ul><ul><li>“ Cover your assets” -- financial planning includes protecting your assets with insurance </li></ul></ul><ul><ul><li>Invest intelligently -- financial planning helps you understand the principles of investing </li></ul></ul><ul><ul><li>Minimize taxes -- financial planning helps you keep your assets where they should be, in your own pocket </li></ul></ul>
  18. 18. Summary (cont’d) <ul><li>Define your goals – you must first know where you want to go before you can decide how to get there. </li></ul><ul><li>Evaluate your financial health – you must first know where you are before you can determine where you are going. </li></ul><ul><li>Develop a personal financial plan – you must first draw a map before you can follow it. </li></ul>
  19. 19. Summary (cont’d) <ul><li>Implement your plan – you must begin before you can end. </li></ul><ul><li>Review your progress – you must continue to check the map t ensure you are staying on course. </li></ul>