1. Understanding the Financial Planning Process#1

2. Learning Goals
Identify the benefits of using personal financial planning techniques to manage your finances
Describe the personal financial process and define your goals
Explain the life cycle of financial plans, the role they play in achieving your financial goals, how to deal with special planning concerns, and the use of professional financial planners
Examine the economic environment’s influence on personal financial planning
Evaluate the impact of age, education, and geographic location on personal income
Understand the importance of career choices and their relationship to personal financial planning

3. The Rewards of Sound Financial Planning
Improving Your Standard of Living
Spending Money Wisely
Accumulating Wealth

4. Standard of Living Closely related to quality of life
Wealth if key determinant in both
Two Income families and its affect

5. Spending Money Wisely Major benefit of financial planning
Average Propensity to Consume
Low income who spend large portion on necessities have High APC
Large income spend small portion on necessities have Low APC
Different incomes can have same APC because of differences in Standard of Living

6. Future Needs Set aside a portion of current income for future needs
35% of Americans say retirement planning is their most pressing concern.

7. Wealth – total value of all assets you own
Financial Assets
Intangible
Paper assets
Savings accounts
Stocks
Bonds
“earnings” assets
Tangible Assets
Physical assets
Real estate
Cars
For consumption or investment

8. Organizational Planning Model

9. Average American Family

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

11. Six-Step 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, revise plans as circumstances change

12. The Role of Money Medium of exchange used to measure value
Utility amount of satisfaction derived from purchases versus cost
Link to personal psychological concepts and key role in personal relationships

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

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

15. Personal Financial Planning Life Cycle

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

17. 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

18. Assets – things we own Liquid assets Investments
Used to pay everyday expenses
Cash, savings, money market accounts
Investments
Acquired to earn a return
Stocks, bonds, mutual funds

19. Assets – things we own Personal property Real property
Movable property
Cars, household items, jewelry, clothing
Real property
Immovable property
Land, anything fixed to it such as a house

20. Liabilities
Something we owe
debt

21. Insurance Way to reduce financial risk and protect income and assets
Adequate insurance is essential

22. Special Planning Concerns
Managing two incomes
Managing employee benefits
Managing finances through tough economic times

23. Using Professional Financial Planners
Commission-based planners earn commission on selling financial products
Fee-only planners charge fees based on complexity of prepared plans
Hybrid approach involves both charging fees and collecting commissions

24. The Planning Environment
Financial planning environment contains various interrelated groups of players, each fulfilling certain goals.

25. Financial Planning Environment

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

27. 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

28. 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

29. Exhibit 1.7: The Business Cycle
The business cycle consists of four stages: expansion, peak, contraction, and trough

30. Business Cycle
The stronger the economy, the higher the levels of GDP and employment

31. Inflation and Prices
Inflation – general level of price increases over time
Most common measure of inflation is the CPI – Consumer Price Index
Inflation DIRECTLY affects interest rates

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

33. How Age and Education Affect Family Income