Financial Planning

1. Financial Planning HIR3C0

2. Financial Planning 1 2 3 How will I get there? – Defining a plan (setting a budget) Where am I now? – Assess your personal and financial situation Where do I want to be? – Setting financial goals How am I doing? – Monitor your current spending patterns Did I get there? – Compare your budget to what you have actually spent 4 5

3. Financial Planning – Where am I now? • Phase 1: Assess your personal and financial situation • Identify what financial resources you currently have. • Your financial resources are what you use to get the goods and services you need and want. • Your most important financial resource is money. • Sources of money can come from: • A) earnings from a job • B) parents • B) investment income • C) gifts or inheritance

4. Financial Planning – Where am I now? • Factors that affect your financial resources include your values, goals, needs, wants, stage in life, lifestyle and other resources. Your attitude towards money will also influence how you use it – are you cautious about spending and save easily, or do you tend to spend freely and save little? • Other resources that affect your financial resources: • Human resources: Personal resources (i.e. knowledge, skills, time and energy) and people (including family and friends) • Material resources: Money and possessions that a person can use to accomplish goals • Community resources: People, facilities, goods, and services that are available for use at minimal or no cost to local citizens • Natural resources: Useful things that are found in nature, such as air, water, soil, plants, animals, minerals and sources of mechanical energy

5. Financial Planning – Where do I want to be? • Phase 2: Set personal and financial goals • Effective money management starts with goal setting. Plan what you want your money to do for you. "If you don't know where you are going, you may end up somewhere else and not even know it." • What are some of your: • 1) educational goals 4) health/physical goals • 2) social goals 5) recreational goals • 3) family goals 6) financial goals Once you prioritize your most important goals, identify what you could be doing now to work toward the goals, and what resources (personal or external) you may need to achieve each goal.

6. Financial Planning – Where do I want to be? • Financial Goals • Your financial goals will help you determine how to use your financial resources and where you want to spend your money. You are more likely to work toward your goals if they are important enough to write down. • Financial goals can be long term or short term. • Long-term goals might include going to college, purchasing a car, paying for a wedding, saving for retirement, or other objectives that involve large amounts of money. • Short-term goals might include buying a computer, purchasing a new coat, buying a bicycle, or other more immediate ends that involve smaller amounts of money. • Your long-term and short-term goals are interrelated.

7. Financial Planning – Where do I want to be? • Financial Goals need to be SMART. • Be stated in specific ("I plan/want to…") measurable terms "…save $5000 for a down payment to buy a house." • Be realistic • A student working part-time is not likely to be able to afford a new car every couple of years. • Have a time frame • "To pay off my credit card within the next 18 months." • Be attainable (state the action to be taken) • "To start an automatic deposit savings account with monthly withdrawals from my chequing account."

8. Financial Planning – How will I get there? • Define your plan – Set a budget • You need to balance spending and income and make sure you have money set aside for your goals. Money management starts with thinking about how and why you spend. Are you getting what you need and want? • - You should know how much it costs to live each month including irregular annual expenses (e.g. car maintenance, gifts). • - You shouldn't spend more than you earn (avoid credit) • - Plan to save. Without savings, long-term goals may never happen. Have an emergency fund too – life is never as smooth as you might like (e.g. accident, strike, downturn in the economy). You'll be more likely to save money if you set aside part of your income first, then live on what is left.

9. Financial Planning – How will I get there? • Developing a budget • To meet your needs, your budget should be based on your own values, goals, and personal situation. • The main purpose of a budget is to help you live within your means (i.e. your income). It is a plan for spending and saving. It helps you prioritize where your money goes.Budgeting puts you in control of your money and helps reduce non-essential spending. It gives you a clear picture of your financial health. A budget serves as a foundation for long-term financial security because it supports your personal and financial goals. • Budgeting is more likely to work if you make it a habit and if you make the process as easy as possible.

10. Financial Planning – How will I get there? • The Budgeting Process • Most budget plans are set up on a yearly basis to allow for periodic expenses. The plan is then often broken down into regular monthly periods. • 1) Estimating income • - all the money that you receive regardless of the source • - base your budget on the least amount of money you expect to receive • 2) Estimating expenses • - how you plan to spend the money you have available – be realistic • - estimate expenses based on previous spending experiences or estimated amounts based on research • 3) Plan for savings • 4) Do a trial budget run, usually for one month. • - compare budget to actual and make any necessary adjustments

11. Financial Planning – How will I get there? • Keep Financial Records • The key to successful budgeting is keeping accurate records of your income and expenses. • Four common recordkeeping systems: • 1) Envelope system • 2) Record sheet system (or software program) • 3) Chequing account system • 4) Combination system

12. Financial Planning – How am I doing? • Monitor your current spending habits • The key is to manage your spending so your expenses are less than your income. It requires self-discipline so that it becomes habit. • Review some of the key budget areas where you spend the most money and try to trim 5% to 10% from these categories (e.g. food, clothing, entertainment). • Review your spending habits. Can you do things differently to save money?

13. Financial Planning – Did I get there? • Compare your budget to what you have actually spent. • At the end of each budget period (e.g. monthly), check to see if your income and expenses balance. If money is left over what will you do with it? If you ran short of money, what expenses can you reduce next month? • Adjust your budget if necessary (increase income or reduce expenses). • Did you realize your financial goals? May need to reassess your goals.