Life Cycle of Financial Planning Take Charge of Your Finances

Financial Planning Many people follow a similar financial pattern during their life BUT Everyone has an individualized financial plan. Financial planning is a tool used to achieve financial success based upon the development and implementation of financial goals.

Financial Plan Influences Financial planning is influenced by many factors: Values, Goals & Personal Choices Major Life Events Lifestyle Conditions Life Cycle Needs These factors can be expected and unexpected.

An essential step to creating a financial plan Financial Goals Financial goals are specific objectives to be accomplished through financial planning Financial goals should be SMART goals: Specific Measurable Attainable Realistic Time Bound An essential step to creating a financial plan

SMART Financial Goals Specific Measurable Attainable Realistic State exactly what is to be done with the money involved. Measurable Write the exact dollar amount. Attainable Determine how it can be reached, which is often determined by the individual’s budget. Realistic Do not set the goal for something unattainable or unrealistic. Time Bound Specifically state when the goal needs to be reached.

Lifestyle Conditions Marital status Employment status Age Single, married, divorced, widowed Employment status Employed, unemployed, facing unemployment Age Age of all family members Number of dependents Children, spouse, parents, other family Economic outlook Interest rates, employment level, salary rates Education Education level of family members, tuition needs for children Health status Health of all family members Income Amount of income

Financial Life Cycle A life cycle is a series of stages in which an individual passes during his or her lifetime There is a typical life cycle pattern that applies to most people Includes three stages The amount of time it takes to move through the financial life cycle varies for every individual

An Individual’s Financial Life Cycle $ Approaching Retirement Years Retirement Years Single * Marriage * Start and Raise Family 20 30 40 50 60 70 80 Years of Age Stage 1: Basic Wealth Protection Stage 3: Wealth Distribution Stage 2: Wealth Accumulation

An Individual’s Financial Life Cycle Stage 1: Basic Wealth Protection In this stage, the individual should be focusing on building financial security. Stage 2: Wealth Accumulation In this stage, the household head has reached peak earning years, is accumulating wealth, and approaching retirement. Stage 3: Wealth Distribution This stage involves the consumption of wealth, usually during retirement

Personal Financial Management Pyramid Risk and Tax Management: goal setting, insurance, protection against economic loss, income tax reduction Building Long Term Wealth: goal setting, retirement planning, investments Cash Management: goal setting, emergency, cash reserve, record keeping, spending plans, net worth, and income-expense statements Estate Planning Credit and Debt Management: goal setting, credit use, avoiding credit abuse, debt reduction Building Financial Security: goal setting, savings plan, home ownership, children’s education Wealth Distribution ‘giving it to your chosen ones’ Wealth Accumulation ‘giving it to yourself’ Basic Wealth Protection ‘quit giving it to others’

Life Cycle Events Activity People in certain age groups tend to have similar life cycle needs What activities and events require financial planning during each stage? High School Ages 13-17 Young Adult Ages 18-24 Adult With or Without Children Ages 25-34 Working Parent or Adult Ages 35-44 Midlife Ages 45-54 Pre-Retirement Ages 55-64 Retired Ages 65 and older Identify someone you know in each category

Traditional Age Group Financial Planning Needs High School Ages 13 – 17 Developing a plan for eventual independence Preparing for career Evaluating future financial needs and resources Exploring financial systems – banks, etc. Developing a personal system of record keeping

Traditional Age Group Financial Planning Needs Young Adult Ages 18 – 24 Establishing a household Training for a career Earning financial independence Determining insurance needs Establishing credit Establishing savings Creating a spending plan Developing a personal financial identity Developing a personal financial system

Traditional Age Group Financial Planning Needs Adult With or Without Children Ages 25 – 34 Child-bearing Child-raising Starting an education fund for children Expanding career goals Managing increased need for credit Discussing and managing additional insurance needs Creating a will Maximizing financial management by all members of household

Traditional Age Group Financial Planning Needs Working Adult or Parent Ages 35 – 44 Upgrading career training Building on children’s education fund Developing protection needs for head-of-household Need for greater income due to expanding needs Establishing retirement goals

Traditional Age Group Financial Planning Needs Midlife Ages 45 – 54 Assisting with higher education for children Investing Updating retirement plans Developing estate plans

Traditional Age Group Financial Planning Needs Pre-Retirement Ages 55 – 64 Consolidating assets Planning future security Re-evaluating property transfer Investigating retirement part-time income or volunteer work Evaluating expenses for retirement and current housing Meeting responsibilities of ageing parents

Traditional Age Group Financial Planning Needs Retired Ages 65 and older Re-evaluating and adjusting living conditions and spending as related to health and income Adjusting insurance programs for increasing risks Acquiring assistance in management of personal and financial affairs Finalizing estate plan Finalizing will or letter of last instructions

Everyone has the same financial plan. True or False? Everyone has the same financial plan.