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Financial Planning

Financial Planning. Decisions & Goals in Personal Finance. What does personal financial planning mean?. It means spending, saving, and investing your money so you can have the kind of life you want as well as financial security.

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Financial Planning

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  1. Financial Planning Decisions & Goals in Personal Finance

  2. What does personal financial planning mean? • It means spending, saving, and investing your money so you can have the kind of life you want as well as financial security. • Everyone has different financial goals (things you want to accomplish).

  3. Why Plan? Some of the benefits: • You have more money, know how to use money to achieve your goals, and are financially secure; • You have less chance of going into debt you can’t handle; • You can help your partner and support your children.

  4. Why It’s Important Learning the steps in the financial planning process will give you a solid foundation for making all your financial decisions, big and small, now and in the future.

  5. Personal Financial Planningin 6 Steps

  6. Step 1: Determine your current financial situation Make a list of monthly income, expenses, and debts. Keep a record!!!

  7. Step 2:Develop your financial goals What is your attitude toward money? Need vs. Want Think Critically…. Why is it important to distinguish between your needs and your wants?

  8. Step 3:Identify alternative courses of action What are your options? • Expand current situation • Change the current situation • Start something new • Continue the same course of action

  9. Step 4: Evaluate your alternatives • Sources of financial information • social and economic conditions • Consequences of choices • opportunity costs • Understanding risks • Inflation, interest rate, income, personal, and liquidity

  10. Step 5:Create and use your financial plan of action • A list of way to achieve your financial goals

  11. Step 6:Review & Revise your plan • Should be looked at at minimum every year

  12. Developing Personal Financial Goals

  13. WRITE IT DOWN!!!!Studies show that people who write down their goals are 3 times more likely to achieve them.

  14. Types of Goals Can be defined by the time it takes to achieve them: • Short-term goals are those that you’ll reach in one year or less (save for computer) • Intermediate goals take two to five years to reach (house down payment) • Long-term goals take more than five years to reach (retirement)

  15. Can also be defined depending on the need.. Service vs Good Consumable (soda) Durable (car….expensive, not purchased often) Intangible (education)

  16. Guidelines for setting goals Your financial goals should: • Be realistic • Be specific • Have a clear time frame • Help you decide what type of action to take

  17. SMART goals Specific “I want to go to Panama City for Spring Break” vs. “I want to go somewhere fun over Spring Break” Measurable “I’ll need $150 for my share of the hotel room for the week” vs. “ I want to save a bunch of money for the trip” Attainable “I’ll split the driving with my friends and take $200 more for gas, food, and other spending” vs. “I want $500 to fly there and $700 for spending money” Realistic “I’ll save $60 a month from my paycheck for the next six months” vs. “I’ll buy lottery tickets every week” Time bound “I want to save all the money by March 1st vs. “I want to save all the money by spring”

  18. Influences on Personal Financial Planning Life situations Personal values Economic factors

  19. Economic Factors Market Forces Supply/Demand Financial Institutions Federal Reserve System Global Influences Where were they made? Economic Conditions Inflation, Consumer, Interest

  20. Opportunity Costs & Financial Strategies • Personal Opportunity Costs • Time, health, skills, etc • Financial Opportunity Costs • Time value of money---future value?

  21. Calculating Interest Need the following 3 numbers: Principal Annual Interest Rate Length of time investing Principal x Annual Interest Rate = Interest Earned for 1 Year P x R = I $1,000 x 5% = $50

  22. Future Value • Future Value of a Single Deposit • $1000 deposit, 5% interest rate=$50 1styr • ($1000+$50) x 5%= $52.50 2ndyr = $1102.50 • Future Value of a Series of Deposits • $1000 a yr @ %5 6 yrs. = $1000 x 6.802=$6802 • Present Value of a Single Deposit • Amt to deposit now to have a desired amt. Want $1000…1000 x .784=$784 now Present Value Series of Deposits -how much you need to take so much out later on Ex. Want $400 each year for 9 yrs, how much need in acct right now?

  23. Achieving Your Financial Goals • Obtain – making money • Plan – how to spend • Spend – less than earn! • Save – bills, emergencies, long-term • Borrow – when necessary • Invest – income & long-term growth • Manage Risk – protect if sick, injured, die • Retire – enjoy life

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