Introductory lecture on personal financial planning

1. Chapter 1
Financial Planning:
The Ties That Bind
1

2. ……Money and Marriage…
2

3. What does a penny mean
to you?
• What will you have
if you double a
penny a day for 30
days?
3

4. ONLY………………
• $10,737,418.23
• (try this yourself: .01 * 100% for 30
periods
4

5. • If a tiny worthless penny can grow to
be that much, imagine what 10% to
20% of your salary could grow to be?
5

6. • How „bout those acrylic nails?
– $80 month * 12 = $960/year
– For 30 years = $28,800
– That $960 invested each year at 11%
for 30 years = $91,064!!!
– Ladies, you are wearing your new dream
car!
6

7. • What about your coffee?
• Your recreational liquid consumption?
• Do you smoke?
7

8. Java
• $4.50 @ 3 per day = $13.5
• Per week = $94.5
• Per year = $4,914
• Invested per year for 10 years at
11% = $82,171
8

9. Alcohol
• Average 45 drinks per month (college
males) @ average $4.5 per drink =
$202.50
• Per year $2,430
• Invested for 40 years at 11% =
$1,413,837
9

10. Death Sticks
• $20.65 Carton (Camels)
• 1.5 cartons per week = $30.98
• Per year = $1610.70
• Invested for 20 years @ 11% =
$103,411.50
10

11. Think about it….
• Your habits TODAY determine your
life style for tomorrow.
11

12. Why Should You Develop
a Personal Financial Plan?
12

13. • Achieve your financial goals.
• Achieve financial independence.
• Invest intelligently
• Minimize your payments to Uncle
Sam
• Cover your assets
13

14. Putting Planning In
Context
14

15. 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
15

16. Stage 1: The Early Years
-- A Time of Wealth
Accumulation
• Develop your savings plan.
• Set your initial goals of
all lengths.
• Establish your long-range
investment strategy.
• Through age 54
16

17. Stage 2: Approaching
Retirement -- The Golden
Years
• Realize intermediate-
term goals
• Re-evaluate the plan
to match current goals.
• Plan for retirement.
• Age 55-64
17

18. Stage 3: The Retirement
Years
• Reduce investment risk
• Concentrate on
preservation rather than
growth of assets
• Plan for the transfer of
your estate
• Ages 65+
18

19. The Personal Financial
Planning Process
• Step 1: Evaluate Your Financial Health
• Step 2: Define Your Financial Goals
• Step 3: Develop a Plan of Action
• Step 4: Implement your plan
• Step 5: Review Your
progress, Reevaluate, and Revise your plan
19

20. A question…
• If there are only 5 steps to financial
planning, then why is it so difficult to
manage your finances?
20

21. Step 1: Evaluate Your
Financial Health
• Evaluate your
current situation:
income, spending,
wealth
• Assess your
whole financial
picture (chpt. 2)
21

22. 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.
22

23. 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?”
23

24. 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.
24

25. Step 3: Develop a Plan of
Action
• What MUST I do to achieve
my goals?
– Cut expenses?
– Increase income?
– Start saving?
– Start investing?
– Career choice?
25

26. 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 noncash assets
into cash with relative
ease and speed. (Chp 5)
26

27. Step 3: Develop a Plan
(cont‟d)
• Protection -- Your ability to meet the
unexpected large expenses without
destroying your plan. (Chp 9 & 10)
• Minimization of Taxes -- Your ability
to pay as little as possible to Uncle
Sam. (Chp 4)
27

28. Step 4: Implement Your
Plan
• Your plan is your road map
• Use common sense and moderation;
don‟t force yourself to track every
penny;
• Remain positive about your plan;
• Stay on track after the detours.
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29. Step 5: Revise Your Plan
• Review your progress.
• Match your plan to your goals.
• Be prepared to start over if your
plan no longer meets your needs.
29

30. A 2nd question…
• What road blocks or detours might
you encounter while following your
financial plan?
30

31. Financial Detours
• Many plans change due to
unanticipated events, but generally
they change due to financial life
cycle pattern changes.
31

32. Education
• It may be the
best single
investment you
will ever make!
32

33. 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.
33

34. Summary: The Personal
Financial Planning Process
• Step 1: Evaluate Your Financial Health
• Step 2: Define Your Financial Goals
• Step 3: Develop a Plan of Action
• Step 4: Implement your plan
• Step 5: Review Your
progress, Reevaluate, and Revise your plan
34