© 2008 Thomson South-Western UNDERSTANDING THE FINANCIAL PLANNING PROCESS CHAPTER 1.

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Presentation transcript:

© 2008 Thomson South-Western UNDERSTANDING THE FINANCIAL PLANNING PROCESS CHAPTER 1

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.

1-3 Improving Your Standard of Living

1-4 The Personal Financial Planning Process  Taking conscientious and systematic steps toward fulfilling your financial goals.

1-5 The Six-Step Financial Planning Process 1. Define financial goals. 2. Develop financial plans and strategies. 3. Implement financial plans and strategies. 4. Develop budgets. 5. Evaluate results by using financial statements. 6. Revise goals as situations change.

Define financial goals 2. Develop plans

Implement plans 4. Develop budgets 1. Define financial goals 2. Develop plans FINANCIAL ACTIONS Basic asset decisions Credit decisions Insurance decisions Investment decisions Retirement and estate decisions

Implement plans 4. Develop budgets 1. Define financial goals 2. Develop plans 5. Evaluate results 6. Revise plans FINANCIAL ACTIONS Basic asset decisions Credit decisions Insurance decisions Investment decisions Retirement and estate decisions Prepare financial statements

1-9 Money  Used as a medium of exchange.  Need to consider utility, or amount of satisfaction derived from purchases, as well as cost.  May be closely linked to personal psychological concepts.  May play key role in personal relationships.

1-10 Put Target Dates on Financial Goals  Short-term goals—to be accomplished within the next year.  Intermediate-term goals—to be accomplished in the next 2-5 years.  Long-term goals—to be accomplished in time periods greater than 5 years.

1-11 From Goals to Plans: A Lifetime of Planning  Early childhood  High school and college  Family formation  Career development  Pre-retirement  Retirement

1-12 Personal Financial Planning Lifecycle

1-13 Benefit of Planning  Your money works more efficiently for you by... The power of compounding through time!

1-14 Growth of $1000 at 8% and 10% Interest

1-15 Economic Cycles

1-16 What Determines Your Personal Income?  Age, marital status  Education  Where you live  Career choice