Your Financial future

1. Your Financial future 16-3

2. Developing a Financial Plan • To have a successful goal you must have a plan • A Financial plan-is a report that summarizes your current financial conditions, acknowledges your financial needs and sets a direction for future activities • Includes evaluation ones financial position • Setting financial goals • Guiding activities and resources toward reaching those goals • Should include knowledge of good money management • Should be evaluated and updated frequently.

3. Financial Planning Advantages • Your financial uncertainties will be reduced • You will gain more control of your financial activities • Your family and household members will know more about your financial situation in case they need to assume control of your finances • Earnings, spending, protecting and saving your resources will be more systematic.

4. Financial planning process • Analyze your current financial condition. • Balance sheet and income statement • Develop financial goals that are responsive to your vision • What short and long term objectives do you have? • How much money will you need, and when? • Create your financial plan • You will need to plan various actions for savings and spending goals • May require help from a financial planner or other financial specialists.

5. Financial planning process cont. • Implement the plan • This may involve buying or selling property or investments, moving bank accounts, acquiring insurance, or any number of financial activities. • Revise your financial plan • Frequently evaluate and revise your plan.

6. Financial inventory • Assess your financial health • Usually includes a creation of a personal balance sheet, and income statement (cash flow statement). • Will provide information of your current financial positions in terms of income, savings, investments, property, living expenses, insurance and money owed.

7. Personal Financial Filing System • Need to keep your financial inventory and other records in order. • Should contain all document s and records related to: • Contracts • Bills • Receipts • Bank balances • Legal papers. • Will be valuable when financial planning • See page 411 figure 16-5

8. Financial Life Cycle • Most people follow a predictable pattern called a life cycle. • Teens- usual explore career options, develop plans for independence and evaluate future financial needs • Twenties- you likely train for a new career, set up a household, and perhaps marry and have children. • Later in life- you may decide to obtain additional career training or make plans or paying for children's education. Then retirement plans and savings become a priority. • Each cycle has a financial need that will need a financial plan.

9. Using a Financial Planner • Creating a financial plan on your own is not easy • Requires time, information and patience. • Financial planners are professionals who can help you • Should have at least 2 years of training in • Securities • Taxes • Real-estate • Estate planning • Should have passed a rigorous assessment.

10. Questions to ask when choosing financial planner. • What experience and training do you have? • Are you willing to supply references from past clients? • How are your fees determined?

11. Implement a Financial plan • May involve a wide variety of actions • You may need to move your savings account in which you will earn higher interest • You may buy a bond • You may begin to work more hours at your part time job • Several common areas are listed on the next 2 slides

12. Insure Current Income • Disability Income Insurance- • To replace income when you cannot work due to injury or sickness • You may have to purchase it on your own. • Some employers will provide it • Most disability insurances will pay 60-70 percent of your base salary while you are disabled. • There is usually a 90 day waiting period before benefits begin. • Unemployment Insurance • Most states provide this insurance to unemployed individuals • Is usually for a limited amount of time • Usually a percentage of your income • Must look for positions. Cannot be fired

13. Plan for Future Income • Social Security • Is a key form of income protection • Is a system from the federal government called retirement ,survivors and disability insurance. • Provides pensions to retired and their families • Death benefits to families of deceased dependent workers. • Benefits to those who are disabled and cannot work • Funded by payroll taxes from both employees and employers • Small owners such as farmers pay the full amount themselves • Benefits are either monthly payments or in the form of a trust fund. • Payments depend on how much was paid in.

14. Future income cont. • Pension- is a series of regular payments made to a retired worker under an organized plan. • Many employers offer a pension plan • You must work for a certain number of years • You may have to pay in and employer will match funds • Many individuals rely on a pension with social security • Annuities- amount of money an insurance company pays to a person who previously deposited money with them • They take the money and create an investment plan and invest it for you • You pay the insurance company in a lump some or a series of payments In return the company agrees to pay you a regular income beginning at a certain age and continuing for life or a specific number of years.

15. Retirement Accounts • Retirement Accounts- people can invest in their own retirement plans • Most common is an Individual retirement account (IRA) • Individuals invest money annually usually up to a certain amount • Contributions are tax deductable and earnings are tax deferred • All funds are taxed when withdrawn at 591/2 • Roth IRA • New version • All contributions are taxed • When withdrawn at 591/2 the investment and gains are not taxed.

16. Retirement account cont. • 401K • Allows employers to offer a tax differed plan • Earnings will be taxed later when retirement funds are withdrawn • Keogh retirement plan- a retirement plan for self-employed individuals.

17. Review your financial plan • Revise your financial goals- once you have an understanding of changes in your financial or personal situation you should consider changes in your financial goals • Goals may be short term or long term • Usually stated in a dollar amount Example of a short term goal “saving $1,000 in 1 year” Example of a long term goal “ owning my own home by the age of 30” • Short term goals may need to be given up to achieve long term goals

18. Review Financial Activities • Changes in your goals will require changes in spending and saving. • Retirement is an area that will need to be taken into consideration. • Estate planning • Deciding what happens with your property, investments when you die.

19. Remember to Save • Money management and financial planning are ongoing activities • Every decision will affect both spending and long term financial security • The only way to have money in the future is to spend less than you receive • The overuse of credit and other poor spending habits are the basis of long term financial disaster.