1. © 2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Understanding the Financial Planning Process #1

2. The Rewards of Sound Financial Planning Maintain and improve standard of living Control spending in order to live well today and tomorrow Accumulate wealth

3. Improving Your Standard of Living

4. Average American Family

5. The Personal Financial Planning Process S ystematic process that considers important elements of an individual’s financial affairs in order to fulfill financial goals

6. Six-Step Financial Planning Process 1. Define financial goals 2. Develop financial plans and strategies 3. Implement financial plans and strategies 4. Develop and implement budgets 5. Use financial statements to evaluate results 6. Redefine goals, revise plans as situations change

7. The Role of Money Medium of exchange used to measure value Utility amount of satisfaction derived from purchases versus cost Link to personal psychological concepts and key role in personal relationships

8. Attain Your Financial Goals Set specific goals and focus on results Make goals realistic Involve family members and others Prioritize goals and set a time frame

9. Put Target Dates on Financial Goals Short-term in the next year Intermediate-term the next 2-5 years Long-term 6 years or more

10. From Goals to Plans: A Lifetime of Planning Early childhood High school and college Family formation Career development Pre-retirement Retirement

11. Personal Financial Planning Life Cycle

12. How a $1,000 Investment Grows over Time

13. Plans to Achieve Your Financial Goals Asset acquisition planning Liability and insurance planning Savings and investment planning Employee benefits planning Tax planning Retirement and estate planning

14. Using Professional Financial Planners Types of planners Commission-based – earn commission on financial products sold Fee-only – charge fees based on complexity of the plan

15. The Planning Environment Financial planning takes place in a dynamic economic environment created by the actions of  Government  Business  Consumers

16. Financial Planning Environment

17. Government Federal government plays a major role in regulating the level of economic activity Taxation and regulation constrain personal financial planning

18. The Economy Monetary Policy Controls money supply Used to stimulate or contract economic growth Fiscal Policy Controls levels of taxation Sets levels of government spending

19. The Economy Economic Cycles Stages related to employment and production levels Growth measured by changes in GDP Inflation Measured by changes in CPI Affects purchasing power and interest rates Affects financial plans and goals

20. The Economic Cycle

21. What Determines Your Personal Income? Demographics and income – Age, marital status Education Where you live Career