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Understanding the Financial Planning Process

#1. Understanding the Financial Planning Process. The Rewards of Sound Financial Planning. Maintain and improve standard of living Control spending in order to live well today and tomorrow Accumulate wealth. Improving Your Standard of Living.

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Understanding the Financial Planning Process

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  1. #1 Understanding the Financial Planning Process

  2. The Rewards of Sound Financial Planning Maintain and improve standard of living Control spending in order to live well today and tomorrow Accumulate wealth

  3. Improving Your Standard of Living

  4. Average Propensity to Consume The percentage of each dollar of income that is spent, on average, for current needs rather than saved Average propensity to consume = Income spent on current needs Total income

  5. Average American Family

  6. The Personal Financial Planning Process Systematic process that considers important elements of an individual’s financial affairs in order to fulfill financial goals

  7. Financial Planning Process 1. Define financial goals 2. Develop financial plans and strategies 3. Implement financial plans and strategies 4. Develop and implement budgets 5. Use financial statements to evaluate results 6. Redefine goals and revise plans as situations change

  8. The Role of Money Medium of exchange Utility (amount of satisfaction derived from purchases) versus cost Link to personal psychological concepts and key role in personal relationships

  9. Attain Your Financial Goals Set specific goals and focus on results Make goals realistic Involve family members and others Prioritize goals and set a time frame

  10. Put Target Dates on Financial Goals Short-termin the next year Intermediate-termthe next 2-5 years Long-term 6 years or more

  11. From Goals to Plans:A Lifetime of Planning Early childhood High school and college Family formation Career development Pre-retirement Retirement

  12. Personal Financial Planning Life Cycle

  13. How a $1,000 Investment Grows over Time

  14. Plans to Achieve Your Financial Goals Asset acquisition planning Liability and insurance planning Savings and investment planning Employee benefits planning Tax planning Retirement and estate planning

  15. Using Professional Financial Planners Types of planners Commission-based Fee-based Choosing a financial planner

  16. The Planning Environment Financial planning takes place in a dynamic economic environment created by the actions of Government Business Consumers

  17. The Financial Planning Environment

  18. Government Federal government plays a major role in regulating the level of economic activity Taxation and regulation constrain personal financial planning

  19. The Economy Monetary Policy Controls money supply Used to stimulate or contract economic growth Fiscal Policy Controls levels of taxation Sets levels of government spending

  20. The Economy Economic Cycles Stages related to employment and production levels Growth measured by changes in GDP Inflation Measured by changes in CPI Affects purchasing power and interest rates Affects financial plans and goals

  21. The Economic Cycle

  22. What Determines Your Personal Income? Demographics and income Age, marital status Education Where you live Career

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