1. Financial Planning
Chapter 9

2. Looking at Your Finances
Section 1

3. Benefits of Financial Planning
Allows you to identify priorities
Clarify Financial Goals
Determine how to reach the goals
Helps you pay expenses

4. Benefits of Financial Planning Continued…
Live within your income
Reduce the need to buy on credit
Reduces anxiety about money
Helps you stay in control of financial matters
Develop a sense of financial independence

5. What does it mean to be financially sound?
Live within your means
Postpone some purchases to stay out of debt
Know where your money is going

6. False Sense of Wealth
Teens don’t have to pay all the living expenses that other working-adults do
They have more spending freedom
Premature Affluence- a false sense of wealth

7. Elements of Financial Planning
Budget- a plan for spending and saving money
Choose Investments
Establish credit
Obtain adequate insurance
Make decisions about retirement plans
Setting up an estate plan

8. Start Financial Planning by:
Identifying your goals
Taking stock of your current finances
Analyze your spending habits

9. Identify Financial Goals
Planning for college
Pay off debt
Go on vacation

10. Assessing Current Finances
Balance Sheet- a statement of what you own and what you owe
Assets- Items of value that you own-including $
Liabilities- debts or obligations owed to others
Net Worth- the difference between your assets and liabilities

11. Balance Sheet Assets Liabilities Checking Account $500 Cell Phone Bill
$75
Savings Account
$1500
Amount owed on Credit Cards
$200
Cash
Car loan
$700
Total
$2075
$975
Net Worth
$1100

12. How much would it cost you each year to have a Starbucks coffee everyday? (364 days)
= $728
$3 Everyday
= $1092
$4 Everyday
= $1456
$5 Everyday
= $1820

13. Analyzing Spending Habits
Save receipts
Record spending
Add up over a month
Separate spending by categories
Analyze your expenses
Look for ways to cut costs
Look for things that are high in cost
Look for poor spending habits

14. Planning for Financial Goals
Specific goals
Identify resources
create, organize, implement, and evaluate your plan
Follow decision making steps
Take personal responsibility for your own financial plan

15. Adapting to Changing Needs
Family Life Stages
Marriage
Parenthood
Children moving out
Aging
Demographic Trends- population
Family Crises- loss of job, death, injury, divorce

16. What Can You Do? Have an emergency fund
Have life, health, car, and home insurance
Seek help from others to manage the strain

17. Using Financial Software
Section 2

18. What can Financial Software Do?
Expense tracking
Budgeting
Financial Review
Tax planning
Investment tracking

19. Online Banking Features
Online Banking- conducting business with financial institutions over the internet
Online Bill Payment- means paying bills electronically over the internet
Online Bill Presentment- receiving bills over the internet

20. Should you use Financial Software?
Pros
Easier to organize and manage personal finances
Errors eliminated
Stay in Control
Cons
Costs $
Upgrading
Need computer skills
Time to learn

21. Choosing a Package Determine your needs and wants for a program
Look for one that meets both needs and wants

22. Tips for Using Software
Backup data
Take time getting comfortable with it
Seek Help
Decide how much time you want to invest
Stay aware of upgrades

23. Creating a Budget
Section 3

24. Why make a budget? Avoid running out of money Evaluate spending habits
Set aside savings
Work toward financial goals

25. Setting up a budget Estimating income Estimating expenses
Bringing the two into balance

26. Estimating Income
Gross Income- total amount of money you expect to earn before taxes and other paycheck deductions
Net Income- amount you expect to receive after paycheck deductions
Don’t Know? Estimate based on past paychecks, tips, bonuses, etc

27. Estimate Expenses
Fixed Expenses- regular payments that don’t vary in amount
Variable- (flexible) normally increase or decrease
Discretionary Expenses- expenses that aren’t absolutely necessary : vacation and entertainment
Irregular Expenses- expenses that come only once (annually), twice (semi-annually), or four (quarterly) times a year

28. Estimate Expenses Continued
Put into Categories
Look at Your past spending
Expert recommendations
National averages: Consumer Expenditure survey

29. Recommendations for Spending
10-15% on Charitable giving
5-10% on Savings
30-35% on Housing (mortgage/rent, utilities, fixing up)
5-15% on Food
10-15% on Transportation
2-7% on Clothing
5-10% on Health, on Personal, on recreation, on debts

30. Plan for Savings Savings shouldn’t just be “leftover” money
Necessary for unexpected events or job loss
Put a part of budget

31. Balance Budget Add all expenses $1350 Subtract from income - $1500
Result should be zero +$150
If not move some money around…add to savings or subtract from discretionary expenses, reduce fixed expenses, or increase income

32. Using Your Budget Use discipline to follow through
Monitor it each week
Compare what you really spent with projected amount
Adjust your spending
Revise budge amounts

33. Evaluating the Budget Adjust each month
Evaluate if it is working or not
Are you reaching your financial goals?
Adapt to circumstances as they change

34. Organizing your Records
Section 4

35. Why Keep Records? Identification Legal proof Loan applications
Tax purposes
Budgeting purposes
Verify transactions
Reference
Medical reasons

36. How long to keep records
Some permanent
Depends on what it is
General rule: more important the longer you keep it
7 yrs for Taxes

37. Storing Records and Documents
Safe Deposit Box- locked box that can be rented in a secure area of a bank
Home safe or lock box
Home filling system

38. Reviewing Records Once a year Prepare for tax return
Discard or archive old records
Review contents of safe deposit box
Update list of accounts
Update inventory of where records are stored

39. Updating Documents When you move: address and phone With:
Financial institutions
Voter registration office
Your employer
State motor vehicle
Post office
Clubs, magazines, etc
Friends and family members

40. Archive
Put in long-term storage in a less accessible area

41. Seeking Professional Advice
Section 5

42. What help do you need? Know what help you are looking for Tax returns
Investing advice
Checking over contracts

43. Who is Qualified to help?
Credentials- licenses, certifications, or degrees that indicate that a person is qualified to perform a certain service
Financial planner
Financial advisor
Financial consultant

44. Certified Financial Planner
CFP
Evaluate your financial status
Make recommendations for ways to reach financial goals

45. Chartered Financial Consultant
ChFC
CFP + courses in insurance, economics, taxation, real estate, other areas related to investing and financial planning

46. Accountant Tax advice and preparation Investment advice
Financial Planning
Certified Public Accountants: CPA
Personal Financial Specialist: PFS

47. Insurance Agent Chartered Life Underwriter- CLU
Training in retirement and estate planning

48. Attorney Prepares wills Review documents connected to home purchases
Enforce contracts
Handles complicated tax situations

49. Pro bono
No charge for service to clients who face extreme financial hardship

50. Fees and Commissions
Conflict of interest- choose what would earn them most money rather than what is best for the client
Fee –the only arrangements eliminate all questions of conflict of interests

51. Choosing a Professional
Financial Planning Associations
National Association of Personal Financial Advisors
American Bar Association
Family and Friends

52. Ask Questions What is your training and experience?
Will some services be provided by other staff members or outside sources?
Are you paid fees, commissions, or both?
What is the estimated cost of all the services I will be receiving?
Can I have that in writing
Can I have names of references?
Verify credentials

53. Stay Focused on your Goals
Stay informed
Ask questions
Make sure you understand everything
Don’t sign unless you understand
Evaluate the Advisor