Personal Financial Planning

What Kind of Car do you want? Everyone can think of several things they would really like to have, but can’t because they don’t have the money. Everyone falls into one of two groups: Dreamers Achievers Goals are things you want to accomplish. Examples: buying a car, getting a college education, starting a business. Your goal will change as you grow older and your lifestyle and responsibilities change. No matter what goals you have now, or how they will changes, the method for achieving them remains the same.

Financial Decisions and Goals What is personal Finance? Personal financial planning is arranging to spend, save, and invest money to: live comfortably have financial security achieve goals

Planning your personal finance Benefits of planning You have more money and financial security You know how to use money to achieve your goals You have less change of going into debt you cannot handle You can support your family

Plan your success A plan increases your chance for success. Make a written plan with the steps to take and the order in which the steps must be taken.

The Pizza Principle You eat a pizza the same way you accomplish any big job; one bite at a time. Break down any big goal into bite-size steps that must be taken to reach the goal. Schedule the steps in chronological order, in time to reach your goal by your deadline. Planning is a way of bringing the future into the present, enabling you to determine the things you have to do today, next week, and in the weeks to come to succeed in your goal.

Financial Planning Process Step 1: determine your current financial situation Make a list that relates to your finances Savings Monthly income (job, allowance, gifts, interest) Monthly expenses Debts (money you owe)

Financial Planning Process Step 2: Develop your financial goals Is it more important to spend money now or save for your future? Would you rather get a job after high school or continue your education? Do your personal Values affect your financial decisions? Values are the beliefs and principles you consider important, correct, and desirable. Different people value different things. Understand the difference between wants and needs Need is something you must have to survive Want is something you desire or would like to have/do

Financial Planning Process Step 3: Identify your options Expand the current situation Change the current situation Start something new Continue the same course of action

Evaluate your Alternatives Look at your situation in life Present financial situation Personal values Consider the consequences and risks of each decision you make Research financial decisions Consequences of choices Understand risks

Consequences of choices When you choose and option , you eliminate other possibilities You cannot choose all options Opportunity Cost, or trade-off, is the what is given up when making one choice instead of another **However, choosing involves knowing what you gain as well

Understanding risks When you make financial decisions, you accept certain financial risks as well Inflation risks Interest Rate Risks Income Risks Personal Risks Liquidity Risks *liquidity is the ability to easily convert financial assets into cash without loss of value

Financial Planning Process Step 5: Create and Use Your financial Plan of Action Ways to achieve your financial goals

Financial Planning Process Step 6: Review and Revise your plan Some plans need to change Reevaluate and revise your financial plans periodically

Developing personal financial goals Types of financial Goals Time Frame Goals Goals for needs

Time Frame Goals Short-term Goals—take one year or less to achieve Intermediate Goals—take two to five years to achieve Long-term goals—take more than five years to achieve

Goals for Different Needs How you establish and reach your financial goals will depend on whether a goal involves the need for consumable goods, durable goods, or intangible items. Goods—a physical item that is produced and can be weighed or measured Services—a task that a person or a machine performs to you Consumable goods—purchases that your make often and use up quickly. Durable goods—expensive items that you do not purchase often. Intangible items—cannot be touched but are often important to your well-being and happiness

Guidelines for setting goals Realistic Specific Clear time frame Help you decide what type of action to take

How to get what you want The difference between a wish and a goal is how it is stated You can change a wish into a goal with this simple process. A goal must: Be realistic Be specific Have a deadline (Time Frame) Have a price tag

Goal Setting Goal Target Date Estimated Cost Attend 3-week session with Vintage Film Restoration Society at FYI Next July $1,800 A. Save $1,800 By June 15 Find a Job Open a Savings Account Deposit $200 per month Start now After First Check October to June Limited Social Life Thirty Minutes $200 per month B. Complete Class Before May 31 Register for class Take class Mail certificate By December 9 Begin January 10 After last class $300 2 hours/wk for 10 weeks 15 minutes C. Prepare for trip By June 30 Make airline reservation Send check for lodging Get Traveler’s Checks By January 1 By June 10 $400 $800

Your goals Goal 1 Goal 2 Goal 3 Realistic (Yes or No)   Goal 1 Goal 2 Goal 3 Realistic (Yes or No) List specifics of the goal Clear time frame for achieving the goal Price Life Situations Personal Values Economic Factors—Prices, Spending, Interest Rates Your goals

Influences on personal financial planning Life situations personal values Economic factors

Economic Factors Economics—the study of the decisions that go into making, distributing, and using goods and services Market forces, financial institutions, global influences, and economic conditions affect global as well as personal decisions