The Importance of Planning Unit 1 The Importance of Planning

My Bucket List Have you ever heard of a bucket list? What would go on yours?? (write on back) Volunteers to share (Activity: Show Me The Money)

Learning objectives Understand the importance of setting goals Identify the steps required in constructing a personal financial plan Calculate net worth Understand the difference between saving and investing

What is a Plan? Plan- a detailed proposal/process for doing or achieving something Financial Plan - The process of defining your financial goals and developing and implementing a strategy to achieve them Goal- something you are trying to achieve Experts believe that it is important to continually set goals for yourself and you should write them down. Studies show that people who write down their goals are more likely to reach them. Why does this work?

The Planning Process 6 step system Used to develop goals, strategies, and task lists to achieve an objective

Steps in the Planning Process Step 1- Establish a goal Should be written in SMART format Specific, Measurable, Attainable, Realistic & Time Bound Goals can be short, medium, or long term. Short-term goals: Under 1 year to achieve Medium-term goals: 1-5 years to achieve Long-term goals: 5 or more years to achieve

I will do better on my report card in the next marking period. Is this a smart goal?? I will do better on my report card in the next marking period. Specific Measurable Attainable Realistic Time Bound

Here’s how we can make it smarter In the next marking period, I will get at least a C on all my math tests, and at least a B on most of my quizzes and homework assignments. But it's not SMART yet because it has no action plan or benchmarks…

Here is a pretty SMART goal: In the next marking period, I will take careful notes and review them at least two days before tests and quizzes so that I can ask the teacher questions about what I don't understand. I will do my math homework before I do things with friends, and when I hand it in, I will ask the teacher about anything I am not sure about. When I get anything wrong, I will make sure to ask the teacher, or one of my classmates how they got the right answer.

Remember… A goal is an outcome, something that will make a difference as a result of achieving it. It can't be too ambitious to be out of reach, but also not so simple that it does not challenge. A goal has to be realistic with a stretch, requiring effort and focus to achieve it. That's why goals need timeframes and measurable action steps along the way so that we can keep track of progress and make adjustments as necessary.

Goal – I want to buy a new car Smart financial goals Goal – I want to buy a new car Smart Goal: Specific – I plan to save for a down payment on a new car Measurable – I plan to save $5,000 for a down payment on a new car Attainable – I plan to save $5,000 for a down payment on a new car by saving $200 from every paycheck Realistic – It is realistic to save $200 from each paycheck for a down payment on a car because usually waste the money on unnecessary items instead of saving it Time Bound – I plan to save $5,000 for a down payment on a new car by saving $200 from each paycheck for two years

Steps in the Planning Process Step 2- Gather Information Determine what it will take to achieve the goal(s) you have set. Research any information you don’t know Amount of work may vary in this step Step 3- Analyze All Your Options What are the different options you could implement to reach your goal? What are the pros/cons of each option Consider what will work best for you

Steps in the Planning Process Step 4- Develop a Strategy Choose your best option from step 3; determine what will need to get done to implement the plan Create a step-by-step guide Step 5- Implement Your Plan Make a commitment to the strategy you have chosen Proceed step by step toward your goal

Steps in the Planning Process Step 6- Monitor Your Progress Review your progress periodically to determine if you need to revise your plan Stay flexible – it’s ok to have to make adjustments; just don’t lose sight of your end goal

Activity: The Planning Process State exactly what is to be done with the money involved Specific Write the exact dollar amount the goal is for Measurable Determine how it can be reached, which is often determined by your budget Attainable Do not set goal for something unattainable or unrealistic Realistic Specifically state when the goal needs to be reached Time Bound Remember for SMART Goals…

Planning VS Being Impulsive There is a natural conflict between planning and being impulsive; between pursuing long-range goals and doing what you feel like doing right now. In the short run planning may involve sacrifice, but in the long run, it gives you more options! Can you think of someone who is completely impulsive and someone who is a complete planner? What are some advantages/and or disadvantages of each extreme?

Benefits of Having a Plan Live within your means Allocate funds to meet expenses Identify financial priorities Save and invest to reach financial goals. Meet financial emergencies and reduce credit use Reduce uncertainty and conflict about financial affairs Gain a sense of financial independence and control

Benefits of having a plan… In the short run planning may involve sacrifice, but in the long run can give you more options

Aspects That Affect Financial Planning Values Personality Knowledge of Finance REMEMBER: It takes more than luck to get what you want out of life. You have to know what you want and then commit to a plan to meet your goals. The hazards of not planning include the risk of having a lifestyle of limited choices.

Planning for your future It is important to understand your Financial position in order to make informed decisions. Before implementing your financial plan, you should first know: The difference between saving and investing Time Value of Money Dollar Cost Averaging Your Net Worth The Rule of 72 These calculations/information will help you better understand what you need to do to successfully accomplish your financial goals.

Saving vs Investing Short-term Low risk Minimal gains Long-term Saving- putting money into an account for short-term storage Investing- committing money to an endeavor with the expectation of growing that amount of money Short-term Low risk Minimal gains Long-term Higher risk/ potential for loss Better gains

Time Value of Money Time Value of Money- the idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. The younger you start investing/saving the more you’ll have at retirement age.

Dollar cost averaging Dollar Cost Averaging- an investment technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price.

Calculating Net Worth Assets- items you OWN and that are worth money (valuables) Liabilities- monies/things you OWE to others (debts) Net Worth = Assets – Liabilities

Example: calculating net worth A newly married couple has the following assets: home valued at $250,000 an investment portfolio valued at $100,000 automobiles and other assets valued at $25,000 Their liabilities include: an outstanding mortgage balance of $100,000 one remaining car loan of $10,000 What is their Net Worth?

Answer: Net Worth = total assets – total liabilities Net worth = ($250,000 +$100,000 + $25,000) – ($100,000 + $10,000) Net worth = $265,000 Consistent increases in net worth indicate good Financial health Important Note: Net worth could be reduced if assets depreciate (lose value)

Activity: Spending personality (Pictures on wall)