fianacial planning ppt

7/30/2019 fianacial planning ppt

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Chapter 1

McGraw-Hill/Irwin Copyright 2007 by The McGraw-Hill Companies, Inc. All rights reserved.

Personal FinanceBasics and the

Time Value of

Money


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Financial Planning and Its Benefits

Personal financial planning - Process ofmanaging money to achieve personaleconomic satisfaction.

Advantages of personal financial planning:

1) Increased effectiveness in obtaining,using, and protecting your financialresources.

2) Increased control of your financial affairs.3) Improved personal relationships.

4) A sense of freedom from financial worriesobtained by looking to the future.

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The Financial Planning Process

Determine your current financialsituation.

Develop your financial goals.

Identify alternative courses of action.

Evaluate your alternatives.

Create and implement your financialaction plan.

Review and revise your plan.

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Every Financial Decision

Involves Evaluating Types of Risk

Inflation risk. Rising prices cause lost buying power.

Interest-rate risk.

Effect costs of borrowing and rate of return. Income risk.

The loss of a job.

Personal risk. Health, safety, or costs.

Liquidity risk.

Higher return may mean less liquidity. 1-5


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Developing Personal Financial Goals

Types of financial goals include those... Influenced by the time frame in which you

want to achieve your goals.

Influenced by the financial need that drivesyour goals.

Timing of goals.

Short-term, intermediate and long-term

goals.

Goals for different financial needs

Consumer product goals, etc.

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Goal-Setting Guidelines

Goals should be realistic Goals should be stated in specific terms

Goals should have a time frame

Goals should indicate the action to betaken

Discuss some of your goals

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Influences on Personal Financial Planning

Adult life cycle stage.

Marital status, household

size, and employment. Major events.

Graduation, marriage, children, retirement,etc.

Values. What values are important to you?

Global influences

Economic conditions

Life situation and personal values

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Changing Economic Conditions

Consumer The value of the dollarprices changes in inflation.

Consumer The demand for goods and

spending services by individuals andhouseholds.

Interest rates The cost of money; cost ofcredit when you borrow; return

on your money when you save

or invest.

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Changing Economic Conditions(continued)

Money Supply The dollars available for

spending in our economy.

Unemployment The number of individuals

without employment who are

willing and able to work.

Housing starts Number of new homes being

built.

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Changing Economic Conditions(continued)

GDP: Gross Total value of goods andDomestic Productservices produced in a

country.

Trade balance Difference between acountrys exports andimports.

Market indexes The relative value ofstocks as represented bythe index, such as theDow Jones Average or the

S&P 500. 1-12


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Opportunity Costs and Financial Results

Evaluated When Making Decisions

Personal

Opportunity Costs

(time, effort, health)

Financial

Opportunity Costs

(Interest, liquidity,

safety )

Financial

Acquisitions

(automobile,home, collegeeducation,investments,insurance,retirement fund)

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Components of Financial Planning

Obtaining (chapter 2) Planning (chapters 3, 4)

Saving (chapter 5)

Borrowing (chapters 6, 7) Spending (chapters 8, 9)

Managing risk (chapters 10-12)

Investing (chapters 13-17)

Retirement and estate planning

(chapters 18, 19)1-18


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Developing a Flexible Financial Plan

A financial plan is a formalized reportthat...

Summarizes your current financial

situation. Analyzes your financial needs.

Recommends future financial activities.

Your financial plan can be created by you,with assistance from a financial planner, or

made using a money management

software package.

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Implementing Your Financial Plan

Develop good financial habits. Use a well conceived spending plan to

help you stay within your income, while

allowing you to save and invest for thefuture.

Have appropriate insurance protection to

prevent financial disasters.

Become informed about tax and

investment alternatives.

Study personal finance.1-20

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