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Financial Planning

Financial Planning. Chapter 9. Looking at Your Finances. Section 1. Benefits of Financial Planning. Allows you to identify priorities Clarify Financial Goals Determine how to reach the goals Helps you pay expenses. Benefits of Financial Planning Continued…. Live within your income

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Financial Planning

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  1. Financial Planning Chapter 9

  2. Looking at Your Finances Section 1

  3. Benefits of Financial Planning • Allows you to identify priorities • Clarify Financial Goals • Determine how to reach the goals • Helps you pay expenses

  4. Benefits of Financial Planning Continued… • Live within your income • Reduce the need to buy on credit • Reduces anxiety about money • Helps you stay in control of financial matters • Develop a sense of financial independence

  5. What does it mean to be financially sound? • Live within your means • Postpone some purchases to stay out of debt • Know where your money is going

  6. False Sense of Wealth • Teens don’t have to pay all the living expenses that other working-adults do • They have more spending freedom • Premature Affluence- a false sense of wealth

  7. Elements of Financial Planning • Budget- a plan for spending and saving money • Choose Investments • Establish credit • Obtain adequate insurance • Make decisions about retirement plans • Setting up an estate plan

  8. Start Financial Planning by: • Identifying your goals • Taking stock of your current finances • Analyze your spending habits

  9. Identify Financial Goals • Planning for college • Pay off debt • Go on vacation

  10. Assessing Current Finances • Balance Sheet- a statement of what you own and what you owe • Assets- Items of value that you own-including $ • Liabilities- debts or obligations owed to others • Net Worth- the difference between your assets and liabilities

  11. Balance Sheet

  12. $2 Everyday = $728 $3 Everyday = $1092 $4 Everyday = $1456 $5 Everyday = $1820 How much would it cost you each year to have a Starbucks coffee everyday? (364 days)

  13. Analyzing Spending Habits • Save receipts • Record spending • Add up over a month • Separate spending by categories • Analyze your expenses • Look for ways to cut costs • Look for things that are high in cost • Look for poor spending habits

  14. Planning for Financial Goals • Specific goals • Identify resources • create, organize, implement, and evaluate your plan • Follow decision making steps • Take personal responsibility for your own financial plan

  15. Adapting to Changing Needs • Family Life Stages • Marriage • Parenthood • Children moving out • Aging • Demographic Trends- population • Family Crises- loss of job, death, injury, divorce

  16. What Can You Do? • Have an emergency fund • Have life, health, car, and home insurance • Seek help from others to manage the strain

  17. Using Financial Software Section 2

  18. What can Financial Software Do? • Expense tracking • Budgeting • Financial Review • Tax planning • Investment tracking

  19. Online Banking Features • Online Banking- conducting business with financial institutions over the internet • Online Bill Payment- means paying bills electronically over the internet • Online Bill Presentment- receiving bills over the internet

  20. Pros Easier to organize and manage personal finances Errors eliminated Stay in Control Cons Costs $ Upgrading Need computer skills Time to learn Should you use Financial Software?

  21. Choosing a Package • Determine your needs and wants for a program • Look for one that meets both needs and wants

  22. Tips for Using Software • Backup data • Take time getting comfortable with it • Seek Help • Decide how much time you want to invest • Stay aware of upgrades

  23. Creating a Budget Section 3

  24. Why make a budget? • Avoid running out of money • Evaluate spending habits • Set aside savings • Work toward financial goals

  25. Setting up a budget • Estimating income • Estimating expenses • Bringing the two into balance

  26. Estimating Income • Gross Income- total amount of money you expect to earn before taxes and other paycheck deductions • Net Income- amount you expect to receive after paycheck deductions • Don’t Know? Estimate based on past paychecks, tips, bonuses, etc

  27. Estimate Expenses • Fixed Expenses- regular payments that don’t vary in amount • Variable- (flexible) normally increase or decrease • Discretionary Expenses- expenses that aren’t absolutely necessary : vacation and entertainment • Irregular Expenses- expenses that come only once (annually), twice (semi-annually), or four (quarterly) times a year

  28. Estimate Expenses Continued • Put into Categories • Look at Your past spending • Expert recommendations • National averages: Consumer Expenditure survey

  29. Recommendations for Spending • 10-15% on Charitable giving • 5-10% on Savings • 30-35% on Housing (mortgage/rent, utilities, fixing up) • 5-15% on Food • 10-15% on Transportation • 2-7% on Clothing • 5-10% on Health, on Personal, on recreation, on debts

  30. Plan for Savings • Savings shouldn’t just be “leftover” money • Necessary for unexpected events or job loss • Put a part of budget

  31. Balance Budget • Add all expenses $1350 • Subtract from income - $1500 • Result should be zero +$150 • If not move some money around…add to savings or subtract from discretionary expenses, reduce fixed expenses, or increase income

  32. Using Your Budget • Use discipline to follow through • Monitor it each week • Compare what you really spent with projected amount • Adjust your spending • Revise budge amounts

  33. Evaluating the Budget • Adjust each month • Evaluate if it is working or not • Are you reaching your financial goals? • Adapt to circumstances as they change

  34. Organizing your Records Section 4

  35. Why Keep Records? • Identification • Legal proof • Loan applications • Tax purposes • Budgeting purposes • Verify transactions • Reference • Medical reasons

  36. How long to keep records • Some permanent • Depends on what it is • General rule: more important the longer you keep it • 7 yrs for Taxes

  37. Storing Records and Documents • Safe Deposit Box- locked box that can be rented in a secure area of a bank • Home safe or lock box • Home filling system

  38. Reviewing Records • Once a year • Prepare for tax return • Discard or archive old records • Review contents of safe deposit box • Update list of accounts • Update inventory of where records are stored

  39. Updating Documents • When you move: address and phone With: • Financial institutions • Voter registration office • Your employer • State motor vehicle • Post office • Clubs, magazines, etc • Friends and family members

  40. Archive • Put in long-term storage in a less accessible area

  41. Seeking Professional Advice Section 5

  42. What help do you need? • Know what help you are looking for • Tax returns • Investing advice • Checking over contracts

  43. Who is Qualified to help? • Credentials- licenses, certifications, or degrees that indicate that a person is qualified to perform a certain service • Financial planner • Financial advisor • Financial consultant

  44. Certified Financial Planner • CFP • Evaluate your financial status • Make recommendations for ways to reach financial goals

  45. Chartered Financial Consultant • ChFC • CFP + courses in insurance, economics, taxation, real estate, other areas related to investing and financial planning

  46. Accountant • Tax advice and preparation • Investment advice • Financial Planning • Certified Public Accountants: CPA • Personal Financial Specialist: PFS

  47. Insurance Agent • Chartered Life Underwriter- CLU • Training in retirement and estate planning

  48. Attorney • Prepares wills • Review documents connected to home purchases • Enforce contracts • Handles complicated tax situations

  49. Pro bono • No charge for service to clients who face extreme financial hardship

  50. Fees and Commissions • Conflict of interest- choose what would earn them most money rather than what is best for the client • Fee –the only arrangements eliminate all questions of conflict of interests

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