1 / 15

Personal Financial Planning: Steps, Goals, and Strategies

Learn the six steps of financial planning, identify factors affecting decisions, set financial goals, and understand opportunity costs. Explore strategies for achieving goals at different life stages.

kbonnett
Download Presentation

Personal Financial Planning: Steps, Goals, and Strategies

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Personal Financial Planning Chapter 1 - Objectives (1.1) When you have completed this section, you will be able to: Define personal financial planning Name the six steps of financial planning Identify factors that affect personal financial decisions 12/20/2019 1

  2. Personal Financial Planning • Arranging to spend, save, and invest money to live comfortably, have financial security, and achieve goals. • Everyone has different financial goals. • Goals – things you want to accomplish • Planning your personal finances is important because it will help you reach your goals 12/20/2019 2

  3. Step 1: Determining Your Current Financial Situation • First…make a list of items that relate to your finances: • Savings • Monthly income (job earnings, allowance, gifts, & interest on bank accounts) • Monthly expenses (money you spend) • Debts (money you owe to others) • Keep a careful record of everything you buy for one month to help you determine your financial situation. • List three of your financial goals. 12/20/2019 3

  4. Step 2: Develop Your Financial Goals • Think about your attitude toward money and ask yourself some questions: • Is it more important to spend your money now or to save for the future? • Would you rather get a job right after high school or continue your education? • Do your personal values affect your financial decisions? • Values- beliefs principles you consider important, correct, and desirable. Different people value different things. 12/20/2019 4

  5. Step 3: Identify Your Options • It’s impossible to make a good decision unless you know all your options. • Generally, you have several possible courses of action. • Be aware in each case that the costs of your decision may outweigh the benefits. 12/20/2019 5

  6. Step 4: Evaluate Your Alternatives • Look at your present financial situation and your personal values • Consider the consequences & risks of each decision you make • Consequences of choices: when you choose one option, you eliminate other possibilities. You cannot choose all options. • Opportunity cost- what is given up when making one choice instead of another. 12/20/2019 6

  7. Understanding risks • Types of financial risks: • Inflation risk • Prices may increase if you wait to buy something • Interest rate risk • When rates go up or down, it affects the cost of borrowing • Income risk • Job loss, health problems, family problems, an accident, or changes in your field of work • Personal risk • Ex. Driving in hazardous conditions vs. more expensive cost of flying • Liquidity risk • Ability to easily convert financial assets into cash w/o loss in value…some assets are difficult to convert quickly. 12/20/2019 7

  8. Step 5: Create & Use Your Financial Plan of Action • List of ways to achieve your financial goals. • Examples: • Cut spending • Get a part-time job or work more hours at your present job • Use extra money to pay off debts, save money, purchase stocks, or make other investments • Step 6: Review & Revise Your Plan – as you get older, your finances & needs will change…as a result, your financial plan will change too. Evaluate & revise as needed. 12/20/2019 8

  9. Types of financial goals Short-term (one-year or less) Intermediate (2-5 years) ex. Saving for a down payment on a house Long-term (more than 5 years) ex. Planning for retirement Develop Personal Financial Goals 12/20/2019 9

  10. Goals for Different Needs • Consumable goods • Durable goods • Intangible goods (health, education)…often overlooked but can be expensive • Guidelines for setting goals • Realistic, specific, clear time frame

  11. Influences on Personal Financial Planning • Many factors will influence your day-to-day decisions about finances. The three most important factors are: • Life situations • Personal values • Economic factors • Economy • Market forces • Supply & demand • Financial institutions • Federal Reserve System • Global influences • Economic conditions • Consumer prices (inflation) • Consumer spending • Interest rates (price we pay for the use of another’s money)

  12. Objectives (1.2) • When you have completed this section, you will be able to: • Explain opportunity costs associated with personal financial decisions. • Identify eight strategies for achieving financial goals at different stages of life. 12/20/2019 12

  13. Financial opportunity costs • Time value of money • Increase of an amount of money due to interest or dividends • Calculating interest: need principal, annual interest rate, and length of time your money will be in an account • Principal – original amount of money on deposit (amount you borrow)

  14. Future value of a single deposit • Future value – amount your original deposit will be worth in the future based on earning a specific interest rate over a specific period of time. • When computing future value, your balance compounds (your money increases faster over time).

  15. Present value of a single deposit • Present value – amount of money you would need to deposit now in order to have a desired amount in the future. • Achieving your financial goals • Obtain money by working, investing, or owning property • Plan • Spend wisely • Save • Borrow wisely – only when necessary • Invest • Manage risk – purchase insurance • Plan for retirement

More Related