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Managing Your Money Financial Planning

Managing Your Money Financial Planning. U$iN $eN$e Practical Money Skills For Life. Suhaila Kani CFP TM M.Comm BSc Royal Bank of Canada. Contents. About Financial Planning Life Goals Basics To Savings Time Value of Money Savings Loans Credit Cards. Financial Planning.

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Managing Your Money Financial Planning

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  1. Managing Your Money Financial Planning U$iN $eN$e Practical Money Skills For Life Suhaila Kani CFPTM M.Comm BSc Royal Bank of Canada

  2. Contents • About Financial Planning • Life Goals • Basics To Savings • Time Value of Money • Savings • Loans • Credit Cards

  3. Financial Planning • Essential part of our everyday lives to help BUILD YOUR MONEY TREE • Help to plan for YOUR FUTURE future, your children’s future and our family as a whole. • Determine how individuals can meet their LIFE GOALS through proper management of their financial resources. • Can be used as a key to getting yourself on the road to FINANCIAL INDEPENDENCE and towards becoming FINANCIALLY FREE!

  4. What Are Life Goals? What Are You Saving For? • Cars • Weddings • Having Babies • Travelling • Dream House • Business • Own/Children’s Education • Retirement • Old Age • Unexpected circumstance • Financial Security

  5. How to get what you want? • Set Goals/Dreams/Targets • Be Realistic - Differentiate between A Need and A Want • Need: A Must, Cannot Do Without e.g House • Want: Can Live Without e.g 4 Story House • Write Down Your Goals • List according to • Short Term Goals • Medium Term Goals • Long Term Goals • Write the Number of Years Required • Write Down the Amount Required

  6. Example Of Written Goals Din’s Profile: Starts work age 21 with $2000 starting salary. His Goals are as follows:

  7. Where do you start? How do you know how much to save? Everyone’s life is different - Use this as a benchmark Dead Broke: • Don’t Save • Spend More than you Make • Borrow on Credit Card • Have Excessive Debt that Can’t be paid off Poor: • Thinking about Saving but don’t do it. • Spend Everything you make each month and Save Nothing. • Keep telling yourself, “Nantitah!!...”

  8. Use this benchmark Middle Class: Save 5% to 10% of Gross Income Upper Middle Class: Save 10% to 15% of Gross Income Rich: Save 15% to 20% of Gross Income Rich Enough to Retire Early: Save 20% of Gross Income

  9. Map of Your Finances Breakdown of Income & Expenditure Monitoring your finances Do a monthly budget Gives You Financial Control Helps you to know: How much you can save If you Spend more than you Earn What pleasures you can afford Budgeting

  10. Example of Making a Budget Din’s Profile: 21years old $2000 starting salary, Stays with Parents, Has Car Loans. His Budget looks like this:

  11. Do you have an idea how much to save now? • $300 is left over after expenses • What do you do with it? • Spend on other things or Save? SAVE Treat this $300 as an expense that you pay to yourself ‘PAY YOURSELF FIRST’ Before you pay your bills and other expenses ‘PAY YOURSELF FIRST’

  12. Look at what $300/mth can do for you!If you ‘Pay Yourself First’ $300 per month at 5% Annual Return Years

  13. Look at what $300/mth can do for you!If you ‘Pay Yourself First’ $300 per month at 10% Annual Return Years

  14. Let’s See!If you ‘Pay Yourself First’ $1 a day $1 a day at 4% Annual Return Years

  15. Small Savings Can Make A Difference!If you ‘Pay Yourself First’ $3 a day $3 a day at 4% Annual Return Years

  16. Small Savings Can Make A Big Difference! Just by Adding $2 a day at 4% Annual Return In 2 years the difference is $1,497 In 10 years the difference is $8,834 In 15 years the difference is $14,760 In 30 years the difference is $41,639 In 35 years the difference is $54,824 This is the effect of Compounding Interest

  17. Going back to Din’s Goals Din’s Profile: Starts work age 21 with $2000 starting salary. His Goals are as follows:

  18. How much to save for Din’s Car? Din’s Goal is to buy a fancy Sports Car in 5 years time. He need $40,000. How much would he need to save now at 4% p.a? • Save $603per month for5 yearsat this rate. • BUT Din only can save $300 per month. Now, What should he do? Option 1 - Buy a Second Hand car for$20,000 - By saving $300 per month at 4% return p.a Option 2 - Reduce expenses by $100a month - Save $400 per month - $26,519in 5 years at 4% p.a Option 3 - Invest $400 per mth at8% p.a -$29,390 in 5 years

  19. How much to save for Din’s Car? • Din has 1 month bonus yearly. • Save: 1 month bonus of $2000 each year at 4%, at the end of 5 years Just his bonuses will amount to$10,832 • If Din really wants to save for his Dream Sport Car, save $400 a month at 4% p.a and save $2000 (1 month bonus) for 5 years, total savings Equal to $26,519+$10,832 = $37,351 • OR save $400 a month at 8% p.a and save $2000 (1 month bonus) at 4% p.a for 5 years, total savings Equal to $29,390+$10,832 = $40,222

  20. Car Loans Some people say, ‘Save the Hassle and just Loan for the Car’ Here’s an example, If Din takes out a loan of 40K at 9% reducing rate with a minimum payment of $800 for 5 years. BUT ONLY $300 is left after his expenses Option 1 • Extend period payment to 7, 10, 12 years etc BUT this will incurmore interest Option 2 • Try to finish his previous loans to keep to the 5 year period payment Option 3 • Save enough for a down payment to reduce Din’s Loan Interest

  21. Car Loans Say Din takes option 2, paying off his previous loans and pay $800 minimum over 5 year To Note: • $800 goes to the bank not to yourself. Din in 5 years time will haveNO SAVINGS • Din will continue to workPAYCHECK TO PAYCHECKjust to pay for his Car • $800 per month at 4% after 5 years will total upto$53,039which he could have saved for the car and still have some left for his Wedding! • GOOD TO WAIT!You might not know other things might happen within 5 years of Savings. Examples: • Won a Lucky Draw for a Car • Parents Give Him a Car • New Car at lower cost in 5 years time • Priorities change

  22. PAY YOURSELF FIRST! Save StillHAVE SAVINGSat the end of 5 years EXTRA MONEYafter 5 years can be for other uses No DEBT Pay $40K Car inCASH MAKE PROFIT FOR THE BANK Pay the Bank First so they can earn money of you At the end of 5 years,NO SAVINGS DEBT CYCLEthat Never End End up Paying thousands of dollars more than $40K Save Vs LoansWhich is the better deal? You have a choice, which one do you prefer?

  23. Credit Cards Some of the things to know about Credit cards • If you have a $4000 credit card balance, • You pay $100 every month: • HOW LONG WILL IT TAKE TO PAY? Months Interest Rates

  24. Credit Cards Some of the things to know about Credit Cards • If you have a $4000 credit card balance, • You pay $100 every month: • HOW MUCH INTEREST WILL YOU PAY? Months Interest Rates

  25. Pay Yourself First Invest $100 a month at 4% p.a Years

  26. Look at how much you end up paying! Would you rather PAY YOURSELF FIRSTorPAY THE BANK?

  27. Conclusion • Financial Planning is for EVERYBODY • Plan Early – Decide Your Life Goals • Make YOU the biggest Expense so Pay Yourself First • Avoid Debt If Possible • Take RESPONSIBILITY of your own finance like you would yourself • Have fun with financial planning and ENJOY your wealth grow over time!

  28. Credit Card

  29. THANK YOUFOR YOUR TIME

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