FINANCE Personal Financial Planning

What we will discuss  How to create a financial plan  How to develop your financial goals  How to evaluate the economic factors that will affect your financial decisions

Goals Goal – Something you want to accomplish Ex. Getting a college education, buying a car, starting a business

Personal Financial Planning What is it?  Spending, saving, and investing your money so you can have the kind of life you want as well as financial security Why is it important?  It will help you reach your goals

Benefits of planning You have more money, your financially secure Know how to use your money to achieve goals You have less chance of going into debt you cant handle

Financial Planning Process Learning the steps in the financial planning process will give you a solid foundation for making all your financial decisions, big and small, now and in the future There are 6 steps to the financial planning process  Determine your current financial situation  Develop your financial goals  Identify alternative course of action  Evaluate alternatives  Create and use your financial plan  Review and revise your plan

1. Determine your current financial situation Make a list  Your savings  Monthly income  Monthly expenses  Debts Keep a record of everything you spend your money on for one month

2. Develop financial goals Determining your values –  Beliefs and principles you consider important, correct, and desirable  Different people value different things Distinguishing between your needs and your wants  Need: something you must have to survive  Want: something you desire or something you would like to have or do  Ex. Coat when it is cold?

Develop financial goals Only you can decide what goals to pursue It is important to make them:  be realistic  be specific  have a clear time frame  help you decide what type of action to take Ex. You might decide to save 50 dollars every month or 15% of every paycheck

Types of goals Short term- goals reached in a year or less.  saving to buy a computer Intermediate- two to five years.  saving for a down payment on a house Long term- five or more years to reach goal.  planning for retirement Goals should be achievable and specific.

3. Identify alternative course of action It is impossible to make a good decision unless you know all the options  Ex. You are saving 50 dollars a month right now. What are some options you have?  Expanding the situation: saving $60  Changing the situation: investing the $50 in stocks instead of a savings account  Starting something new: using the 50 dollars to pay your debts rather than saving it  Continue the same course

4. Evaluate your alternatives Take a look at your alternatives  Think about consequences of your choices  Understand the risk

5. Create and use your financial plan of action Studies show that people who write down their goals are three times more likely to achieve them

Using your financial plan Ex. If you want to increase your income, you could get a part time job or work more hours at your present job You could use the extra money you earn to pay off debts or to purchase stocks or make other investments

6. Review and revise your plan As you get older, finances and needs will change You should reevaluate and revise your financial plan every year

Questions What are the 6 steps in the financial planning process?  Determine your current financial situation  Develop your financial goals  Identify alternative course of action  Evaluate alternatives  Create and use your financial plan  Review and revise your plan

Questions What are some characteristics of a good goal  be realistic  be specific  have a clear time frame  help you decide what type of action to take What is a short term goal?  Goals reached in a year or less Why are goals important?