Your Financial Plan: Where it all begins “Most people don’t plan to fail… They simply fail to plan!”

What you will learn to… Examine why its important to have a plan for your money Know that SMART goals are Analyze how to get and spend money Use the decision making process to create your financial plan Identify guidelines to implement your financial plan Learn how to monitor and make changes to your financial plan

The Five-Step Financial Planning Process

Step1: Set SMART Financial Goals VOCABULARY: –Needs = the very basic things we must have to survive –Wants = the things that make life more interesting and fun, but you could live without them if you had to –Values = the beliefs and practices in your life that are very important to you –Goals = something you aim for

SMART GOALS Specific Measurable Attainable Realistic Time Bound “$300 through fundraising, $50 from birthday money, save $25 a week.” “Pay for lodging, transportation, meals for a 5-day trip to Washington, D.C.” “If I stick to my plan, I’ll have the money when I need it.” “I still have enough money to live on while I work toward this goal.” “I need to have all the money by 6 months from now.”

Three Kinds of Goals Short-term = goals that you want to achieve within the next three months Intermediate-term = goals you want to achieve within three months to a year Long-term= goals that will take you more than a year to achieve

Gratification Instant Gratification = buying something as soon as you see it Delayed Gratification = giving up something that you want now to get something even better in the future

Delayed Gratifications Saving money over time to make a major purchase.Saving money over time to make a major purchase. Waiting to buy a new product until the price goes down.Waiting to buy a new product until the price goes down. Waiting to see the latest movie until the crowds get smaller and the lines shorter.Waiting to see the latest movie until the crowds get smaller and the lines shorter.

Step 2: Analyze Information Where does your money go? Creating a personal spending log Cash Flow = the money you receive and the money that you spend

Spending Log $35.00 $5.00 $15.00 $4.00 $7.00 $8.00 $15.00 $40.00$55.00 $15.00

Step 3: Create a Plan Establish your criteria Examine your options Weigh the pros and cons Make your decision Evaluate the results Identify your goal

CRITERIA You are going to the movies. The criteria may be: 1.What type of movie to watch 2.When you want to go to the movies 3.How much money you want to spend

Know What You Want Identify Your Goal Buying a car EstablishCriteria 4.

Rob’s Situation Goal A: Save $5 per week for the next four weeks to buy a new video game –Save $20 Goal B: Save $10 per week for the next nine weeks to buy a new pair of shoes –Save $90 However, Rob’s Personal Spending Record shows that he has only $5 left over each week. So he asks you what to do – Choose Goal A or Goal B

What should Rob do? Help Rob decide what to do to reach his goals. Use this chart to list the criteria and possible options for Rob’s situation. CriteriaOption A:Option B:Option C: Save $5 for next four weeks Save $5 for 4 weeks and buy the video game Save $5 for 18 weeks and buy the sneaker Save $5 for 22 weeks and then buy the video game and the sneakers Save $10 for next 9 weeks Rob saves $5 a week according to his spending log. Notes Another Option: Rob can re-examine his spending plan and try too save more that $5 a week. This would allow him to buy both the video and sneakers sooner (perhaps even in the time desireed).

Satellite Decisions Opportunity Cost = The value of what is given up when you choose one option over another Satellite decisions = decisions that come from a larger decision Class Trip How to Travel Bus Where to Stay cabin hotel Cars Train Plane Who Will Go Whom to contact for arrangements

The Decision- Making Process EvaluateResults Make a Decision Identify Your Goal Weigh Pros and Cons EstablishCriteria Monitor & Modify the Plan Implement Set Goals Create a Plan AnalyzeInformation The Financial Planning Process Decision Making and Financial Planning

Step 4: Implementing the Plan »Reality »Responsibility »Restraint

Guidelines For Sticking With Your Plan Write your goals on a index card or find pictures of your goals and post them in a place you’ll see everyday. Tell other people about your goals. Also, ask someone to check in with you about your progress – knowing someone is going to ask about it is good motivation! When you’re going to spend money, decide how much you’ll need ahead of time and take only that amount so you’re not tempted to spend more. Review your plan regularly so you know when you’re starting to stray and can make adjustments quickly.

Step 5: Monitor and Modify A plan isn’t meant to be written in stone. –Unexpected and uncontrollable events/Situations When you achieve your goal, celebrate and cross it off your list. Then revisit your list of goals and ask yourself these questions: 1.Are my existing goals still worth achieving? 2.Is there a new goal to add to my list? 3.Is there an existing goal I want to drop or change?

Creating your Own Financial Plan Page 14 – Create your own financial plan under Unit Assessment 1.1