Personal Financial Planning Chapter 3

PERSONAL FINANCIAL DECISIONS Chapter 3 Section 1: Part I

What is Personal Financial Planning? Arranging to spend, save, and invest money. Live comfortably Financial security Setting goals

Benefits of Personal financial planning Ability to protect financial resources throughout lifespan Control of finances Improved personal relationships Freedom from financial worries

6-Step Financial Planning process

Step 1: Determine financial situation Savings Monthly income Monthly expenses Debts Keep a record of purchases

Step 2: Develop financial goals Prioritize needs and wants Save now? Spend now? Determine your values

Step 3: Identify alternatives Continue same practices Expand practices Change situation Take a new course of action

Step 4: Evaluate alternatives Examine life situation (conduct research) Determine risks Inflation Interest Income Personal Liquidity

Step 5: Create and use plan List of ways to achieve financial goals

Step 6: Review and Revise your plan Finances change

PERSONAL FINANCIAL DECISIONS Chapter 3 Section 1: Part II

Types of financial goals Based on time and need Time Short-Term: one year or less Intermediate: two to five years Long-Term: more than five years

Guidelines for goal setting Your financial goals should be... Realistic Specific In a clear time frame Able to help you decide what type of action to take

Influences on financial planning 1.Life situations 2.Personal values 3.Economic factors

Life situations and Personal Values Careers Marriage Children Move to a new city What do you want out of life?

Economic Factors and conditions Market – forces supply and demand, consumer prices (inflation) Financial Institutions – increase financial activity in the country, consumer spending Global Influences – global market place, foreign countries, interest rates