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INTRODUCTION TO FINANCIAL PLANNING
- 1. Chapter 1 Financial Planning: TheTies That Bind 1
- 2.
- 3. What does apenny mean to you? • What will you have if you double a penny a day for 30 days? 3
- 4. ONLY……………… • $10,737,418.23 • (trythis yourself: .01 * 100% for 30 periods 4
- 5. • If atiny worthless penny can grow to be that much, imagine what 10% to 20% of your salary could grow to be? 5
- 6. • How „boutthose acrylic nails? – $80 month * 12 = $960/year – For 30 years = $28,800 – That $960 invested each year at 11% for 30 years = $91,064!!! – Ladies, you are wearing your new dream car! 6
- 7. • What aboutyour coffee? • Your recreational liquid consumption? • Do you smoke? 7
- 8. Java • $4.50 @ 3 per day = $13.5 • Per week = $94.5 • Per year = $4,914 • Invested per year for 10 years at 11% = $82,171 8
- 9. Alcohol • Average 45drinks per month (college males) @ average $4.5 per drink = $202.50 • Per year $2,430 • Invested for 40 years at 11% = $1,413,837 9
- 10. Death Sticks • $20.65 Carton (Camels) • 1.5 cartons per week = $30.98 • Per year = $1610.70 • Invested for 20 years @ 11% = $103,411.50 10
- 11. Think about it…. •Your habits TODAY determine your life style for tomorrow. 11
- 12. Why Should YouDevelop a Personal Financial Plan? 12
- 13. • Achieve your financial goals. • Achieve financial independence. • Invest intelligently • Minimize your payments to Uncle Sam • Cover your assets 13
- 14. Putting Planning In Context 14
- 15. The Life Cycleof Financial Planning • Stage 1: The Early Years -- A Time of Wealth Accumulation • Stage 2: Approaching Retirement -- The Golden Years • Stage 3: The Retirement Years 15
- 16. Stage 1: TheEarly Years -- A Time of Wealth Accumulation • Develop your savings plan. • Set your initial goals of all lengths. • Establish your long-range investment strategy. • Through age 54 16
- 17. Stage 2: Approaching Retirement -- The Golden Years • Realize intermediate- term goals • Re-evaluate the plan to match current goals. • Plan for retirement. • Age 55-64 17
- 18. Stage 3: TheRetirement Years • Reduce investment risk • Concentrate on preservation rather than growth of assets • Plan for the transfer of your estate • Ages 65+ 18
- 19. The Personal Financial Planning Process • Step 1: Evaluate Your Financial Health • Step 2: Define Your Financial Goals • Step 3: Develop a Plan of Action • Step 4: Implement your plan • Step 5: Review Your progress, Reevaluate, and Revise your plan 19
- 20. A question… • Ifthere are only 5 steps to financial planning, then why is it so difficult to manage your finances? 20
- 21. Step 1: EvaluateYour Financial Health • Evaluate your current situation: income, spending, wealth • Assess your whole financial picture (chpt. 2) 21
- 22. Step 2: DefineYour Financial Goals • Specifically define and write down your financial goals to reflect your financial and life situation. • Attach a cost to each goal. • Set a date for when the money is needed to accomplish the goal. 22
- 23. Goals: The Cornerstoneof a Financial Plan • Goals keep the future in mind by reminding you of the rewards. • Goals entice you to keep the plan in effect. • Goals provide tangibility for the question, “Why?” 23
- 24. What Are theTime Horizons for Financial Goals? • Short-term goals can be accomplished within a 1-year period . • Intermediate-term goals take 1-10 years to accomplish. • Long-term goals take more than 10 years to achieve. 24
- 25. Step 3: Developa Plan of Action • What MUST I do to achieve my goals? – Cut expenses? – Increase income? – Start saving? – Start investing? – Career choice? 25
- 26. Step 3: Developa Plan of Action • Flexibility -- The ability for your plan to change as your situations or goals change. • Liquidity -- Your ability to convert noncash assets into cash with relative ease and speed. (Chp 5) 26
- 27. Step 3: Developa Plan (cont‟d) • Protection -- Your ability to meet the unexpected large expenses without destroying your plan. (Chp 9 & 10) • Minimization of Taxes -- Your ability to pay as little as possible to Uncle Sam. (Chp 4) 27
- 28. Step 4: ImplementYour Plan • Your plan is your road map • Use common sense and moderation; don‟t force yourself to track every penny; • Remain positive about your plan; • Stay on track after the detours. 28
- 29. Step 5: ReviseYour Plan • Review your progress. • Match your plan to your goals. • Be prepared to start over if your plan no longer meets your needs. 29
- 30. A 2nd question… •What road blocks or detours might you encounter while following your financial plan? 30
- 31. Financial Detours • Manyplans change due to unanticipated events, but generally they change due to financial life cycle pattern changes. 31
- 32. Education • It maybe the best single investment you will ever make! 32
- 33. Your Income: What Determines It • Earnings determine standard of living. • Education is the key factor in determining income level. • 70% of wealthy householders finished college. 33
- 34. Summary: The Personal FinancialPlanning Process • Step 1: Evaluate Your Financial Health • Step 2: Define Your Financial Goals • Step 3: Develop a Plan of Action • Step 4: Implement your plan • Step 5: Review Your progress, Reevaluate, and Revise your plan 34