1. Understanding the Financial Planning Process#1
Understanding the Financial Planning Process

2. The Rewards of Sound Financial Planning
Maintain and improve standard of living
Control spending in order to live well today and tomorrow
Accumulate wealth

3. Improving Your Standard of Living

4. Average Propensity to Consume
The percentage of each dollar of income that is spent, on average, for current needs rather than saved
Average propensity to consume =
Income spent on current needs
Total income

5. Average American Family

6. The Personal Financial Planning Process
Systematic process that considers important elements of an individual’s financial affairs in order to fulfill financial goals

7. Financial Planning Process
1. Define financial goals
2. Develop financial plans and strategies
3. Implement financial plans and strategies
4. Develop and implement budgets
5. Use financial statements to evaluate results
6. Redefine goals and revise plans as situations change

8. The Role of Money Medium of exchange
Utility (amount of satisfaction derived from purchases) versus cost
Link to personal psychological concepts and key role in personal relationships

9. Attain Your Financial Goals
Set specific goals and focus on results
Make goals realistic
Involve family members and others
Prioritize goals and set a time frame

10. Put Target Dates on Financial Goals
Short-term in the next year
Intermediate-term the next 2-5 years
Long-term years or more

11. From Goals to Plans: A Lifetime of Planning
Early childhood
High school and college
Family formation
Career development
Pre-retirement
Retirement

12. Personal Financial Planning Life Cycle

13. How a $1,000 Investment Grows over Time

14. Plans to Achieve Your Financial Goals
Asset acquisition planning
Liability and insurance planning
Savings and investment planning
Employee benefits planning
Tax planning
Retirement and estate planning

15. Using Professional Financial Planners
Types of planners
Commission-based
Fee-based
Choosing a financial planner

16. The Planning Environment
Financial planning takes place in a dynamic economic environment created by the actions of
Government
Business
Consumers

17. The Financial Planning Environment

18. Government
Federal government plays a major role in regulating the level of economic activity
Taxation and regulation constrain personal financial planning

19. The Economy Monetary Policy Fiscal Policy Controls money supply
Used to stimulate or contract economic growth
Fiscal Policy
Controls levels of taxation
Sets levels of government spending

20. The Economy Economic Cycles Inflation
Stages related to employment and production levels
Growth measured by changes in GDP
Inflation
Measured by changes in CPI
Affects purchasing power and interest rates
Affects financial plans and goals

21. The Economic Cycle

22. What Determines Your Personal Income?
Demographics and income
Age, marital status
Education
Where you live
Career