1. Personal Financial Planning in Action

CONSUMABLE PRODUCT GOALS

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DURABLE PRODUCT GOALS

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Three main elements that affect overall financial planning

1. Economic factors 2. Personal values 3. Life situation

FINANCIAL PLANNING PROCESS

1⃣ Determine current financial situation. 2⃣ Develop your financial goals. 3⃣ Identify alternative courses of action. 4⃣ Evaluate alternatives. 5⃣ create and implement financial action plan. 6⃣ Review and revise financial plan.

METHODS FOR CALCULATING TIME VALUE OF MONEY

1⃣ FORMULA CALCULATION 2⃣ TIME VALUE OF MONEY TABLES 3⃣ FINANCIAL CALCULATOR 4⃣ SPREADSHEET SOFTWARE 5⃣ WEBSITES AND APPS

THREE MAIN ELEMENTS THAT AFFECT OVERALL FINANCIAL PLANNING?

1⃣ life situation 2⃣ personal values 3⃣ economic factors

INFLATION

A rise in the general level of prices.

ANNUITY

A series of equal deposits or payments.

BANKRUPTCY

A set of federal laws allowing you to either restructure your debts or remove certain debts.

SHORT-TERM GOALS

Achieved within the next year or so. - saving for annual vacation - paying off small debts

LONG-TERM GOALS

Financial plans more than 5 years off such as retirement.

VALUES

Ideas and principles that a person considers correct, desirable, and important.

TIME VALUE OF MONEY

Increase in an amount of money as a result of interest earned.

PRESENT VALUE

The current value for a future amount based on a certain interest rate and a certain time period. ✳️ aka discounting

PERSONAL FINANCIAL PLANNING

The process of managing your money to achieve personal economic satisfaction.

OPPORTUNITY COST

What a person gives up by making a choice. ✳️ Aka trade off decision. ✳️ Should be viewed in terms if both personal and financial resources.

Risk premium Factors

✳️ length of time ✳️ uncertainty of getting money back ✳️ expected inflation ✳️ interest rates

Young couple with children under 18

➡️ Carefully mange the increased need for the use of credit. ➡️ Obtain an appropriate amount of life insurance for the care of dependents ➡️ Use a will to name Guardian for children.

Young, single (18-35)

➡️ Establish financial independence ➡️ Obtain disability insurance to replace income during prolonged illness. ➡️ Consider home purchase for tax benefit

Four situational influences for financial decisions

1. Age 2. Marital status 3. Size of household 4. Employment situation

When the level of exports is lower than imports, this will typically cause...

A decrease in the money supply

FINANCIAL PLAN

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities.

Hidden inflation exists when the cost of ______ rise at a higher rate than ______ items.

Necessities; nonessential

FUTURE VALUE

The amount to which current savings will increase based on a certain interest rate and a certain time period. ✳️ aka as compounding ✳️ FV ⁼ PV（１＋ⅈ）ⁿ

ADULT LIFE CYCLE

The stages in the family situation and financial needs of an adult.

ECONOMICS

The study of how wealth is created and distributed.

INTERMEDIATE GOALS

Time frame of 2-5 years

PERSONAL OPPORTUNITY COSTS

Time used for studying, working, or shopping will not be available for other uses. Can relate to health.

RULE OF 72

To find out how fast prices will double. ✳️ Divide 72 by the annual inflation (interest) rate. ✳️ if inflation is 6%, prices will double in 12 years. (72/6=12)

Interest rates

✳️ Represent the cost of money. ✳️ The forces of supply and demand influence interest rates. ✳️ people with poor credit pay higher interest rated

INTANGIBLE GOALS

Relate to personal relationships, health, education, or leisure.

WHICH INSTITUTIONS COLLECTIVELY CREATE THE NATIONAL ECONOMY?

✳️ labor force ✳️ government ✳️ businesses

Older (50+), single

➡️ Arrange for LT health coverage. ➡️ Review will and estate plan. ➡️ Plan retirement living facilities, living expenses, and activities.

Older couple (50+), no delendent children at home

➡️ Consolidate financial assets and review estate plans. ➡️ Consider household budget changes several years prior to retirement. ➡️ Plan retirement housing, living expenses, recreational activities, and part-time work.

Young, dual-income couple no children

➡️ Coordinate insurance coverage and other benefits. ➡️ Develop savings and investment program for changes in life situation (larger house, children). ➡️ Consider tax-deferred contributions for retirement fund.

Mixed generation household, (elderly individuals and children under 18)

➡️ Obtain LT health care insurance and life/disability income for care of younger dependents. ➡️ Use dependent care services if needed. ➡️ Provide arrangements for handling finances of elderly if they become ill. ➡️ Consider splitting of investment cost, with elderly income while alive and principal going to survive relatives.

Single parent with children under 18

➡️ Obtain adequate amounts of health, life, and disability insurance. ➡️ Contribute to a savings and investment fund for college. ➡️ Name a guardian for children and make other estate plans.

SMART

➡️ S-specific, so you know exactly what your goals are and you can create a plan to achieve those goals. ➡️ M- measure able by a specific amount ➡️ A-action oriented, i.e. lower credit card debt. ➡️ R-realistic, goals based on income and life situation. ➡️ T-time based, indicate time frame to reach goal.