Planning Your Financial Future: It Begins Here Chapter 1

Financial Planning Financial plan- is a set of goals for acquiring, saving, and spending money Do you want to just get by living pay check to paychek or do you want to be free from financial worry? Having a financial plan helps you be in control of your financial situation and achieve your goals. Why is financial planning important? Financial Goals- measurable objectives related to acquiring or spending money You may have to give up things you want now in order to be financially secure later Set short term and long term goals, they will help you achieve many things in the future

SMART Goals S- Are my short and long term goals Specific M-Are my goals measurable A-Are my goals attainable R- Are my goals relevant to meeting my financial needs T- Are my goals timely

Needs and Wants Needs- those things a person must have to survive, such as food, water, shelter, and clothing Wants- things a person desires but are not necessary Values-are your beliefs about ideas and principles that are important to you Wealth- is a plentiful supply of money or valuable goods Net Worth- is the difference between what you own and what you owe

Assets-things you own Liabilities- (debts you owe) from the assets Assets-Liabilities=Net Worth Assets-$1785 Liabilites-$968 Net Worth=$817

Investing- is putting money in a savings account, buying savings bonds, or buying part ownership in a company Financial independence- having enough money for your basic needs and modest wants without having to work Growth-increase in value, of their investments over a period of years Invest $2000 for 10 years at 19, grows at 10% rate per year. You stop at 65 years old, you’ll have $1,083,959

Example: Annual investment for 10 years = $2,000 Investment Period= 48years Annual Earnings rate = 10% Total Investment = $20,000 Final Amount = $1,083,959

The average rate of return- the percentage that your savings or other investments earn over a period of time Average return amount= total amount earned / # of years Average rate of return = average return amount / # of years No guaranteed rate of return on most types of investments, return on stocks & interest rates go up and down

Interest- a fee paid on borrowed money or money earned on deposit with a bank or other financial institution The longer you keep money on deposit the more you will earn Compound interest- on the principal(amount invested) plus the interest you have already earned Deposit $1000 interest rate of 5% you will have $1050, next year you will earn $1050 Principal x Rate x Time = Interest

Do Example 1-3 in the book Do Example 1-4 in the book

Rule 72- is an equation that lets you estimate how long it will take to double your investment with a fixed annual interest rate 72 / Interest Rate= # of years to double an investment Rate of return of 6% How many years will it take you to double your investment? 72 / 6(ror) = 12 So it will take 12 years