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Understanding the Financial Planning Process

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  1. Understanding the Financial Planning Process #1

  2. 1. Define Personal Financial Planning.

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

  4. 2. What are the rewards of sound financial planning?

  5. The Rewards of Sound Financial Planning

  6. Organizational Planning Model

  7. Average American Family

  8. 3. What are the six steps in the Financial Planning Process?

  9. Six-Step Financial Planning Process

  10. The Role of Money Medium of exchangeused to measure value Utility amount of satisfaction derived from purchases versus cost Link to personal psychological concepts and key role in personal relationships

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

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

  13. 4. What are the major plan categories in achieving financial goals?

  14. Plans to Achieve Your Financial Goals

  15. Personal Financial Planning Life Cycle

  16. 5. What are the two important aspects of the financial planning environment?

  17. The Players Financial planning environment contains various interrelated groups of players, each fulfilling certain goals.

  18. Financial Planning Environment

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

  20. 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

  21. 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

  22. Exhibit 1.7: The Business Cycle The business cycle consists of four stages: expansion, peak, contraction, and trough

  23. 6. What determines your personal income?

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

  25. How Age and Education Affect Family Income