Financial Planning

Financial Planning Financial planning is the task of determining how a business will afford to achieve its strategic goals and objectives. Usually, a company creates a Financial Plan immediately after the vision and objectives have been set. The Financial Plan describes each of the activities, resources, equipment and materials that are needed to achieve these objectives, as well as the timeframes involved.

Financial Planning Difference between budget and financial plan

Financial Planning WHERE YOU’RE GOING VS. WHERE YOU ARE TODAY: While a budget helps you map out your key expenses and plan for the weeks and months to come, a financial plan allows you to set a course toward funding financial goals that are 5, 10, or 20 years down the road. A good financial plan may address your income and expenses, taxes, insurance, estate planning, retirement, education needs, and other topics.

Financial Planning Strategies vs. tactics: Creating a financial plan requires building a long-term strategy for getting you where you want to go, while building a budget means money management for the day-to-day. However, having a grasp on how much money to budget once your expenses are paid lets you know how much money can be put toward the goals defined in your financial plan.

Financial Planning Long-term vs. short-term: With a financial plan, you typically track your progress on a quarterly or semi-annual basis. With a budget, you record your income and expenses on a weekly or monthly basis. Generally, the closer you stick to your budget, the more progress you will make on your financial plan. Tip Think about the things you want to do in 10, 20, or 30 years, and what steps you would have to take to reach those goals.

Why is Financial Planning Important To manage income and expenses To create an awareness of your current financial status To plan for the future by developing goals and devising ways to achieve those goals. To provide a system of evaluation and revision for your financial progress.

Why Do You Need a Personal Financial Plan? For most people it is easier to spend than save. To track your expenses, so you don’t spend more than you think you’re spending. You would like to achieve financial independence or retire someday.

Why Should You Develop a Personal Financial Plan? To help you achieve your financial goals. To help you achieve financial independence. To help you understand where all your money is spent To help you support those that have supported you.

The Personal Financial Planning Process Step 1: Define Your Financial Goals Step 2: Evaluate Your Current Financial Status Step 3: Develop a Plan of Action – Consider Your Goals Step 4: Implement Your Plan step 5: Review Your Progress, Reevaluate, and Revise Your Plan as Your Financial Status Changes

Step 1:Define Your 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.

What are the time 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.

Why are goals the cornerstone of 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?

Step 2: Evaluate Your Current Financial Status Your income: What determines it Your expenses What determines them

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

Your Expenses: What Determines Them Expenses are your costs of living. There are two types of expenses Fixed expenses such as rent, car payments, and day care are expenses that don’t change in amount and are usually controlled by a contract. Variable (flexible) expenses, like your phone bill or the amount you spend on entertainment, are expenses over which you have control.

Step 3: Develop a Plan of Action Flexibility -- The ability for your plan to change as your situations or goals change. Liquidity -- Your ability to convert non-cash assets into cash with relative ease and speed.

Step 3 Protection -- Your ability to meet the unexpected large expenses without destroying your plan Minimization of Taxes -- Your ability to pay as little as possible to the government.

Step 4: Implement Your Plan Use common sense and moderation; don’t force yourself to track every cedi. Remain positive about your plan; don’t view your plan as a punishment. Rewards await you, so don’t lose sight of why you developed the plan.

Step 5: Revise Your Plan Periodically review your progress to see if any fine tuning needs to be done. Make sure that your plan still matches your goals. Be prepared to start over if your plan no longer meets your needs.

Summary Build your financial future around a financial plan Manage the unplanned -- financial planning withstands minor setbacks. Accumulate wealth -- financial planning maps out strategies for meeting your goals. Save for financial independence and/or retirement -- financial planning helps you determine the costs of retirement and how much you need to save.

Summary Accumulate wealth -- financial planning maps out strategies for meeting your goals. Save for financial independence and/or retirement -- financial planning helps you determine the costs of retirement and how much you need to save.

Cover your assets” -- financial planning includes protecting your assets with insurance Invest intelligently -- financial planning helps you understand the principles of investing – Minimize taxes -- financial planning helps you keep your assets where they should be, in your own pocket

Summary (cont’d) Define your goals – you must first know where you want to go before you can decide how to get there. Evaluate your financial health – you must first know where you are before you can determine where you are going. Develop a personal financial plan – you must first draw a map before you can follow it.

Summary (cont’d) Implement your plan – you must begin before you can end Review your progress – you must continue to check the map t ensure you are staying on course.

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