Personal Financial Planning

Unit 2“Personal Financial Decisions”

Personal Financial Planning is arranging to

spend, save, and invest money to live comfortably, have financial security, and achieve goals.

Some benefits are: Protecting your financial resources Helping to avoid too much debt, bankruptcy,

and dependence on others A sense of freedom from financial worries

Financial Decisions & Goals

Make a list of items that relate to your

finances Savings Monthly income

Job, allowance, gifts, interest on bank accounts Monthly expenses

Money you spend – lunch, gas, movies, cell phone Debts

Money you owe to others

Step 1 - Determine Your Current Financial Situation

What is your attitude toward money?? Is it more important to you to SPEND money

now or SAVE for the future? Job after high school or college? Do your personal values affect your financial

decisions? Needs vs. Wants

Step 2 – Develop Your Financial Goals

It’s impossible to make a good decision unless

you know ALL your options Suppose that you save $50 a month—you

could: Continue the same course of action Expand situation – increase the amount you

save Change the current situation – invest the money Take a NEW course of action – use the money to

pay off debt

Step 3 – Identify Alternative Courses of Action

Look at your situation in life Consider the consequences and risks of each

decision you make Look at PROS and CONS to each decision Check out the many sources of financial

information available Internet, banks, magazines, specialists

Evaluate ALL risk associated with handling money Inflation, interest, income, personal, liquidity

Step 4 – Evaluate Your Alternatives

These are guided by your goals Re-evaluate when necessary This changes throughout your financial life

Step 5 – Create and USE Your Financial Plan of Action

Personal Financial Goals

Why do people have money problems?

The main reason is because they do not plan how they will use their money!

Time Frame Goals

Short-term – 1 year or less Intermediate – 2 to 5 years Long-term – more than 5 years

Goals for Different Needs Services – person or machine Goods – consumable, durable and intangible

Types of Financial Goals

Your financial goals should be: Realistic Specific Have a clear time frame Should help you decide what type of action to

take

Guidelines

Life situations Personal Values Economic factors and conditions

Market forces Financial institutions Global influences Consumer prices Consumer spending Interest rates

Influences on Personal Financial Planning

1. Obtain – Obtain financial resources by working,

investing, owning property2. Plan – plan how you will spend your $$3. Spend Wisely – spend what you can afford4. Save – have a savings plan right away5. Borrow Wisely – don’t get into too much debt6. Invest – choose a variety of different options7. Manage Risk – you need insurance8. Plan for Retirement – what age would you like to

stop working and what kind of life do you want to lead?

Achieving Your Financial Goals