Financial Planning

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