Integrating The Components of A Financial Plan Chapter 21 Integrating The Components of A Financial Plan Copyright ©2004 Pearson Education, Inc. All rights reserved.

Chapter Objectives Review the components of a financial plan Illustrate how a financial plan’s components are integrated Provide an example of a financial plan Copyright ©2004 Pearson Education, Inc. All rights reserved.

Integration of Components Within a Financial Plan Budgeting Allows you to forecast how much money you will have at the end of the month so you can anticipate cash shortages or surpluses Budgeting tradeoff A tradeoff between spending today and allocating funds for the future Copyright ©2004 Pearson Education, Inc. All rights reserved.

Integration of Components Within a Financial Plan Managing Liquidity Ensuring that you have enough liquid assets to cover any budget deficits Checking account, savings account, money market, or short-term financing Liquidity tradeoff A tradeoff between have liquid assets which earn low interest rates and non-liquid assets which earn higher interest rates Copyright ©2004 Pearson Education, Inc. All rights reserved.

Integration of Components Within a Financial Plan Copyright ©2004 Pearson Education, Inc. All rights reserved.

Integration of Components Within a Financial Plan Personal financing Allows you to make purchases without having the full amount of cash Useful for large purchases like a car or a home Personal financing tradeoff Tradeoff between tax advantages of mortgage loans with potential budgeting problems Tradeoff between longer maturities with lower payments and more interest and shorter maturities with higher payments and less interest Copyright ©2004 Pearson Education, Inc. All rights reserved.

Integration of Components Within a Financial Plan Protecting your assets and income By purchasing insurance Insurance protects against events that could reduce your income or your wealth Managing investments Making investment choices that meet your financial needs and your risk tolerance Copyright ©2004 Pearson Education, Inc. All rights reserved.

Integration of Components Within a Financial Plan Investment tradeoff Tradeoff between low risk, low interest investments and high risk, high interest investments Tradeoff between high risk, single investments and lower risk, diversified investments Tradeoff between using money now and investing it for the future Copyright ©2004 Pearson Education, Inc. All rights reserved.

Integration of Components Within a Financial Plan Retirement planning Ensures sufficient funds at the time you retire Retirement account tradeoff Saving for retirement limits current spending Maintaining your financial documents You should store all financial documents in one place, either a safe at home or a safety deposit box at a bank Copyright ©2004 Pearson Education, Inc. All rights reserved.

Integration of Components Within a Financial Plan Exhibit 21.2: Documents Used for Financial Planning Copyright ©2004 Pearson Education, Inc. All rights reserved.

Integration of Components Within a Financial Plan Exhibit 21.2: Documents Used for Financial Planning Copyright ©2004 Pearson Education, Inc. All rights reserved.

Financial Planning Online: Insight about Financial Planning Concepts Go to: http://www.kiplinger.com This Web site provides useful information about financial planning that can help you complete and refine your financial plan. Copyright ©2004 Pearson Education, Inc. All rights reserved.

Financial Planning Online: A Synthesized Financial Plan Go to: http://quicken.com/banking_and_credit/savings_calc/ This Web site provides a synthesized financial planning assessment for you, including tax planning, money management, insuring your assets, and investing. Copyright ©2004 Pearson Education, Inc. All rights reserved.

Integrating Key Concepts Copyright ©2004 Pearson Education, Inc. All rights reserved.

Integrating Key Concepts Part 1: Financial Planning Tools Part 2: Liquidity Management Part 3: Financing Part 4: Protecting Your Assets and Income Part 5: Investing Part 6: Retirement and Estate Planning Copyright ©2004 Pearson Education, Inc. All rights reserved.