1. Planning Personal Finances
The Importance of Planning
Rule #1
“If you want to enjoy a successful and rewarding life, you have to plan for it.”
“Don’t count on the winning lottery.”
“Create your own success.”
“Design a plan and follow it.”
Investing in Your Future. NAIC: National Association of Investors Corporation p. 5

2. What is a Plan
A method or process worked out in advance that leads to the achievement of some goal
It is systematic
Relies on using a step-by-step procedure
Needs to be flexible
Adapts to gradual changes in your goal

3. The Planning Process Step 1: Set a Goal
Identify what you want to achieve or obtain
Step 2: Acquire Knowledge
Understand what it will require to achieve your goal. Fill in the picture by research, conversation, and thought
Step 3: Compare Alternatives
Weigh your options, analyze pluses and minuses of each--the costs, demands, the likelihood of success

4. The Planning Process Step 4: Choose a Strategy
Select one option as the best plan of action
The choice is based on sound information, the experience of others, and your own interests and abilities.
Step 5: Make a Commitment
Resolve to proceed step by step toward achieving your goal.
Step 6: Keep Flexible
Evaluate your progress and revise your plan to deal with change

5. Example Step 1: Set a Goal Purchase a stereo system
Step 2: Acquire Knowledge
Visit friends to hear their systems
Study standards and specification
Check dealers, brands, models, and prices
Consult Consumer Reports

6. Example Step 3: Compare Alternatives
Alternative 1: Buy a 2nd hand system for $250
Pro: Affordable high-end equipment. Can buy right now.
Con: Uncertain condition of equipment. No warranty or service agreement.
Alternative 2: Buy a compact shelf system for $325
Pro: Can afford now. New--has warranty
Con: Not suitable for adding extra speakers or using with TV. Not best sound quality.

7. Example Step 3: Compare Alternatives (con’t)
Alternative 3: Buy a high-quality component system for $775
Pro: Excellent sound. Greatest flexibility. New equipment with warranty.
Con: Cost more than prepared to pay now.
Step 4: Choose a Strategy
Decide to buy Alternative 3
Will delay purchase for 6 months instead of
using credit card with high interest.

8. Example Step 5: Make a Commitment Start a “Stereo Fund”
Need to save $130 per month
Pack your lunch instead of eating out
Cut back on entertainment cost (movies)
Step 6: Keep Flexible
Four months into the plan, a discontinued model sale provides an opportunity to buy comparable equipment for $550.
You have saved $520 in your Stereo Fund
Make the purchase paying cash

9. Planning vs Dreams
“Planning is not the same as dreaming, but it uses dreams as raw materials.” p8
Dream: Become a trial lawyer
Dream: Go to Spain as an exchange student
Dreams can become goals
Requires a plan
Fits the 6 steps of the planning process

10. Financial Planning Process
Step 1: Determine your current financial situation
Step 2: Begin developing financial goals
Step 3: Identify alternative courses of action
Step 4: Evaluate these alternatives
Step 5: Create and implement your financial plan
Step 6: Reevaluate and revise your financial plan

11. Financial Goals Short-term goal Attain within one year
Intermediate-term goal
Reach in years
Long-term goals
Reached after six to ten years or 30 years

12. Effective Goals Written Down Measurable Realistic
It is critical that you make a commitment to achieve the goals you set.

13. Examples of Financial Planning
Describe a situation in your life where either you or a family member used the planning process to obtain goals
Describe a situation where a financial plan was used to obtain financial goals