Financial Planning

1. Financial Planning Chapter 9

2. Benefits of Financial Planning • Identify priorities • Clarify financial goals • Determine how to reach goals Knowing that you’re prepared for both everyday and unexpected expenses can reduce anxiety about financial health.

3. Living Within Your Means • Making smart choices about your spending based on the resources you have available • Premature affluence – difficulty adjusting when you have to pay your own living expenses

4. Elements of Financial Planning • Making a budget – a plan for spending and saving your money • Choosing investments that allow your money to grow over time • Establishing credit and managing it wisely • Obtaining adequate insurance to protect against loss • Making decisions about retirement plan choices and other employee benefits • Setting up an estate plan to administer your property according to your wishes

5. Identify Financial Goals • What is important to you and your family? • College tuition • New house • New car • Vacations • Hobbies

6. Assessing Current Finances • Balance sheet – statement of what you own and what you owe • Assets – what you own, includes money • Liabilities – what you owe, debts Net worth = assets - liabilities

7. Analyzing Spending Habits • Keep a record of monthly purchases • Review your spending habits • Do you need to make adjustments?

8. Changing Needs • Family Life Cycle • Marriage • Parenthood • Children Moving Out • Aging

9. Family Crises • Unforeseen events can affect financial planning • Loss of job • Divorce • Death or injury to spouse • Natural disasters • Keep an emergency fund of cash • Have enough life, health and home insurance • Seek help from others

10. What Can Financial Software Do? • Checkbook • Expense Tracking • Budgeting • Automatic Reminders • Financial Review • Income Tax Planning • Investment Tracking • Planning Calculators

11. Should you use financial software? • Easy to organize and manage • Math errors are eliminated • Easy to find information • Upgrades can be costly • Users need good computer skills • Must learn to use program

12. Online Banking Features • Online banking – conducting business with financial institutions over the internet • Online bill payment – paying bills electronically • Online bill presentment – receiving bills over the internet

13. Why make a budget? • Avoid running out of money between paychecks • Evaluate your spending habits and make better choices • Set aside savings for unexpected expenses • Work toward your financial goals

14. Creating a Budget – Step One • Estimate income • Gross income • Net income

15. Creating a budget – Step Two • Estimate Expenses • Fixed expenses – regular payments that do not vary in amount, (rent, loans) • Variable expenses – expenses that normally increase or decrease (utilities, groceries, clothing) • Your past spending • Expert recommendations • National averages

16. Creating a Budget – Step Three • Plan for Savings • Create a budget category for savings just like any other expense

17. Creating a Budget – Step Four • Balance the Budget • Add up all income • Subtract all expenses • Result should equal zero • Result is positive – add more to savings • Result is negative – expenses exceed income • Discretionary expenses – expenses that are not necessary • Trim variable expenses • Reduce fixed expenses

18. How U.S. Consumers Spend Their Money

19. Who is qualified to help? Credentials -licenses, certifications, or degrees that indicate a person is qualified to perform a service • Certified Financial Planner (CFP) • Chartered Financial Consultant • Accountant • Insurance agent • Attorney • Stockbroker

20. Why keep records? • For identification • For legal proof • For loan applications • For tax purposes • For budgeting purposes • To verify transactions • For reference

21. Where to store documents? • Safe deposit box – locked box that can be rented in a secure area of a bank • Home safe or lock box • Home filing system • Electronic storage • Billfold