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Want To Know About Elements of Financial Planning

Set Your Life Goals: To effectively plan for the future, you need to know what you want your money to do for you. Vacation home? Send your grandchildren to college?

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Want To Know About Elements of Financial Planning

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  1. Elements of Financial Planning

  2. Why is Personal Financial Planning Important • To manage income and expenses. • To create an awareness of your current financial status. • To plan for the future by developing goals and devising ways to achieve those goals. • To provide a system of evaluation and revision for your financial progress.

  3. Why Do You Need a Personal Financial Plan? • For most people it is easier to spend than save. • To track your expenses, so you don’t spend more than you think you’re spending. • You would like to achieve financial independence or retire someday.

  4. Why Should You Develop aPersonal Financial Plan? • To help you achieve your financial goals. • To help you achieve financial independence. • To help you understand where all your money is spent. • To help you support those that have supported you.

  5. The Personal Financial Planning Process • Step 1: Define Your Financial Goals • Step 2: Evaluate Your Current Financial Status • Step 3: Develop a Plan of Action • Consider Your Goals • Step 4: Implement Your Plan • Step 5: Review Your Progress, Reevaluate, and Revise Your Plan as Your Financial Status Changes

  6. Step 1: Define Your Financial Goals • Specifically define and write down your financial goals to reflect your financial and life situation. • Attach a cost to each goal. • Set a date for when the money is needed to accomplish the goal.

  7. What are the time horizons for financial goals? • Short-term goals can be accomplished within a 1-year period • Intermediate-term goals take 1-10 years to accomplish. • Long-term goals take more than 10 years to achieve.

  8. Why are goals the cornerstone of a financial plan? • Goals keep the future in mind by reminding you of the rewards. • Goals entice you to keep the plan in effect. • Goals provide tangibility for the question, “Why?”

  9. Step 2: Evaluate Your Current Financial Status • Your income: What determines it. • Your expenses: What determines them.

  10. Your Income: What Determines It • Earnings determine standard of living. • Education is the key factor in determining income level. • 70% of wealthy householders finished college.

  11. Your Expenses: What Determines Them • Expenses are your costs of living. • There are two types of expenses: • Fixed expenses such as rent, car payments, and day care are expenses that don’t change in amount and are usually controlled by a contract. • Variable (flexible) expenses, like your phone bill or the amount you spend on entertainment, are expenses over which you have control.

  12. Step 3: Develop a Plan of Action • Flexibility -- The ability for your plan to change as your situations or goals change. • Liquidity -- Your ability to convert non-cash assets into cash with relative ease and speed.

  13. Step 3: Develop a Plan (cont’d) • Protection -- Your ability to meet the unexpected large expenses without destroying your plan. • Minimization of Taxes -- Your ability to pay as little as possible to the federal government.

  14. Step 4: Implement Your Plan • Use common sense and moderation; don’t force yourself to track every penny. • Remain positive about your plan; don’t view your plan as a punishment. • Rewards await you, so don’t lose sight of why you developed the plan.

  15. Step 5: Revise Your Plan • Periodically review your progress to see if any fine tuning needs to be done. • Make sure that your plan still matches your goals. • Be prepared to start over if your plan no longer meets your needs.

  16. Summary • Build your financial future around a financial plan: • Manage the unplanned -- financial planning withstands minor setbacks. • Accumulate wealth -- financial planning maps out strategies for meeting your goals. • Save for financial independence and/or retirement -- financial planning helps you determine the costs of retirement and how much you need to save.

  17. Summary (cont’d) • “Cover your assets” -- financial planning includes protecting your assets with insurance • Invest intelligently -- financial planning helps you understand the principles of investing • Minimize taxes -- financial planning helps you keep your assets where they should be, in your own pocket

  18. Summary (cont’d) • Define your goals– you must first know where you want to go before you can decide how to get there. • Evaluate your financial health– you must first know where you are before you can determine where you are going. • Develop a personal financial plan– you must first draw a map before you can follow it.

  19. Summary (cont’d) • Implement your plan – you must begin before you can end. • Review your progress – you must continue to check the map t ensure you are staying on course.

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