1. Chapter 1 Personal Financial Planning

2. Personal Financial Planning
Arranging to spend, save, and invest
money in order to:
1. Live comfortably
2. Have financial security
3. Achieve goals

3. Benefits of Planning You have more money and financial security
You can use money to achieve your goals
You have less chance of going into debt you cannot handle
You can help your partner and support your children, if you have a family

4. 6 Steps of the Financial Planning Process
Determine your current financial situation
Make a list of items related to your finances (Savings, Monthly Income, Monthly Expense-budget, and Debts) ⌘
Develop your financial goals
Needs vs. Wants
Identify your Options
Expand your current situation – save more
Change the current situation – invest instead of save
Start something new – maybe use money to pay off debt and stop saving
Continue the same course of action

5. 6 Steps of the Financial Planning Process (continued)
Evaluate your alternatives
Consequences of choices
Ex.- full time student/full time employee
Understand Risk
Inflation: Prices increase over time
Interest: Interest rates can go up or down
Income: Loss of job
Personal: Driving in icy conditions vs. flying
Liquidity: Converting assets into cash
Ex.- Stocks vs. Houses

6. 6 Steps of the Financial Planning Process (continued)
Create and use your financial plan
Once you make solid financial decisions you have to live by them
Review and revise your plan
A good plan is constantly revisited

7. Types of Financial Goals
Short Term – one year or less
Intermediate – 2 to 5 years
Long Term – More than 5 years

8. Guidelines for setting Goals
Your financial goals should be realistic
Your financial goals should be specific
Your financial goals should have a clear time frame
Your financial goals should help you decide what type of action to take

9. Influences on Personal Financial Planning
Life situation and personal values
Go to college, start a new career, get married, have children, move to a new city
Economic factors
Market Forces- supply and demand ⌘
Financial Institutions- banks, credit unions, insurance companies
Economic Conditions
Prices- Inflation
Spending- Create and maintain jobs
Interest Rate- Savings vs. Loans

10. Financial Opportunity Costs
Choices about how you spend money
Time value of money – the increase of an amount of money due to interest earned
Calculating interest – you need to know the principal, the annual interest rate, and the length of time your money will be in the account
Interest for 1 year = Principal X Annual Interest Rate (as a decimal) ⌘
Compounding Interest – Future Value of a single deposit
Interest for 2nd year = New Principal X Annual Interest Rate (as a decimal) ⌘

11. 8 Strategies for Achieving Financial Goals
Obtain – obtain financial resources from working, making investments or owning property
Plan – how will you spend your money
Spend Wisely – Spending less than you earn is the only way to achieve financial security
Save – you will have money to pay bills, make major purchases, and cope with emergencies

12. 8 Strategies for Achieving Financial Goals (continued)
Borrow Wisely – borrowing only when necessary will help you achieve your goals and financial security ⌘
Invest – 2 Reasons: to increase your current income (interest) and to achieve long-term growth (stocks)
Manage Risk – protect your resources in case you are ever seriously injured, get sick or die ⌘
Plan for Retirement – Consider the age you want to retire and the type of lifestyle you want in your retirement