The document discusses the importance of personal financial planning and the steps to develop an effective plan. It notes that financial planning helps manage expenses, create awareness of one's financial situation, and plan for the future by setting goals. The key steps involve defining financial goals, evaluating one's current financial status, developing a plan of action to meet goals, implementing the plan, and reviewing progress to ensure the plan stays on track amid changing circumstances.

1. Elements of Financial Planning

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.