1. PERSONAL FINANCIAL PLANNING1 PERSONAL FINANCIAL PLANNING (PFP)

2. PERSONAL FINANCIAL PLANNING2 PRESENTATION OUTLINE Definitions of personal financial planning Purpose of personal financial planning Why people fail financially Common money myths (false assumptions) Stupid mistakes people make with their money

3. PERSONAL FINANCIAL PLANNING3 Presentation Outline cont’d Approach to financial planning Techniques and tools for personal financial planning Habits of wealth Characteristics of people who successfully build wealth Financial success Determining your financial situation

4. PERSONAL FINANCIAL PLANNING4 DEFINITIONS What is Personal Financial Planning?  Personal Financial Planning is taking charge of your financial future (Charles F Givens).  Personal Financial Planning is really nothing more than proper handling of your cash flow and assets to meet your objectives (David Chilton).  Personal Financial Planning is taking advantage of your earning years to become financially independent.

5. PERSONAL FINANCIAL PLANNING5 Definitions Contd  Personal Financial Planning is applying the corporate theories and techniques of money management to your personal finances (Mary Ann Rafa).  Personal Financial Planning means managing your own money like business (E Raymond Pastor).

6. PERSONAL FINANCIAL PLANNING6 PURPOSE OF PFP To meet financial targets and obligations. To make rational financial decisions. To take advantage of financial opportunities. To minimize the impact of financial threats. To prepare for a comfortable retirement. To achieve financial independence and financial freedom. To leave an estate for survivors, loved ones and chosen charities.

7. PERSONAL FINANCIAL PLANNING7 WHY PEOPLE FAIL FINANCIALLY 1. Incorrect believes and myths about money 2. Procrastination 3. Failure to establish financial goals 4. Failure to develop the savings habit 5. Failure to properly prepare for the unexpected 6. Failure to use money as a tool to create value for ourselves and others 7. Failure to understand and manage credit 8. Ignorance of the relationship between money and time

8. PERSONAL FINANCIAL PLANNING8 COMMON FALSE ASSUMPTIONS Myth #1 – everything in life would be wonderful if only I had more money coming in. Reality – more money coming in is usually accompanied by more money going out. Myth #2 – going into debt now give some choices now instead of having to wait. Reality – going into debt decreases future options.

9. PERSONAL FINANCIAL PLANNING9 Common False Assumptions contd Myth #3 – my present financial situation is a result of circumstances and events beyond my control. Reality – my present financial situation is a result of decisions I have made and the money principles I believe. Myth #4 – having a good job leads ultimately to wealth. Reality – a job is a temporary source of income. To be wealthy, we need permanent sources of income. A job may turn out to be merely a method of generating cash flow for supporting an expensive and unsustainable standard of living unless you take steps to acquire or create sources of income which flow to you regardless of your job.. Myth #5 – wealth is measured in material possessions. Reality – wealth is a state of the mind – an attitude. Myth #6 – if you are rich, you cannot be spiritual. Reality – there are honest ways to create wealth.

10. PERSONAL FINANCIAL PLANNING10 Common False Assumptions contd Myth #7 – all I need to be happy is money. Reality – money can buy happiness, but up to a point. And then the process comes to a standstill or reverses itself. Myth #8 – my financial well being is defined by either how much money I have or how much I earn. Reality – financial well being has to do with how much you keep of what you earn, how well you manage what you have and how soundly you sleep at night. Myth #9 – I spend according to my needs. Reality – most people spend according to emotion (wants). Myth #10 – you have to have money to make money. Reality – while inheritance wealth might give you a head start, there are many rich people who make their own fortunes

11. PERSONAL FINANCIAL PLANNING11 HABITS OF WEALTH “Wealth is largely a result of habit” (Jacob Astor). What is habit? What action do you have to take over and over again or what routines when followed consistently will enable you to create and maintain considerable wealth?

12. PERSONAL FINANCIAL PLANNING12 Habits of wealth continued Pay yourself first Watch your money Set financial goals and work towards achieving them Know your assets and liabilities Seek your dream Take action

13. PERSONAL FINANCIAL PLANNING13 CHARACTERISTICS OF PEOPLE WHO SUCCESSFULLY BUILD WEALTH They live within their means They allocate their time, energy and money efficiently in ways conducive to building wealth They believe that financial independence is more important than displaying high social status They are proficient in targeting market opportunities They choose the right occupation Culled from: Millionaire Next Door by Thomas J Stanley and William O Danko

14. PERSONAL FINANCIAL PLANNING14 FINANCIAL SUCCESS Money to pay your bills Money set aside for emergencies Adequate insurance for major disasters Resources to buy a house Enjoying a comfortable life style A meaningful investment portfolio

15. PERSONAL FINANCIAL PLANNING15 Financial Success Contd Maintaining your life style throughout your retirement years Freedom from financial stress Financial independence Peace of mind A legacy for children/charities

16. PERSONAL FINANCIAL PLANNING16 STUPID MISTAKES PEOPLE MAKE WITH THEIR MONEY (Dan Benson)

17. PERSONAL FINANCIAL PLANNING17 STUPID MISTAKE #1 Counting on the illusive “someday” ~someday I will get out of debt ~when I get my next raise, then… ~may be after Christmas I can start saving

18. PERSONAL FINANCIAL PLANNING18 You may be making stupid mistake #1 if … You find yourself counting on a raise to break even You’re putting off saving or paying off debts until a “better day” You hope mum & dad leave you a nice inheritance You catch yourself thinking, “if only I made more money”

19. PERSONAL FINANCIAL PLANNING19 Suggestion Counting on the illusive “someday” lies at the very core of financial failure. Someday thinking leads to wishing, longing and procrastination. The future in not “Someday”. The future is now.

20. PERSONAL FINANCIAL PLANNING20 STUPID MISTAKE #2 Waiting till it pours to realize that you don’t have an umbrella. ~One thing is certain, life is uncertain ~Real life is not all pleasant breezes ~Life storms cost money. Sometimes big money

21. PERSONAL FINANCIAL PLANNING21 You may be making stupid mistake #2 if … You find yourself thinking that, with all your monthly expenses, there just isn’t enough money left to save A family member has to undergo expensive tests or surgery and you can’t readily take care of the bill without debt You lose your job tomorrow and your present non- retirement savings will cover less than 3 months’ regular living expenses while you search for work You presently have no program in place that automatically shifts money from your pay check or checking account to a savings plan In order to take a much-needed, well deserved vacation, you have to borrow money/ use credit cards to finance it An aging parent needs financial help and you don’t have the available cash to come through

22. PERSONAL FINANCIAL PLANNING22 Suggestion Adjust a habit A penny saved Enjoy hang around vacation Make savings a fixed expense Save hundreds on insurance

23. PERSONAL FINANCIAL PLANNING23 STUPID MISTAKE #3 Feeding the monster ~It is easy to spin wants into needs ~Once we step beyond the essential basics, we spawned the monster

24. PERSONAL FINANCIAL PLANNING24 Feeding The Monster: The Priority Inversion Living Expenses Debt Service Saving & Investing Giving

25. PERSONAL FINANCIAL PLANNING25 Feeding The Monster: The Priority Inversion Living Expenses Debt Service Giving

26. PERSONAL FINANCIAL PLANNING26 You may be making stupid mistake #3 if … Your mortgage is more than 3 times your gross annual income You are not saving or giving what you would like to save or give Theirs is just too much month at the end of your money Your garage is not big enough to hold your vehicles and motorized toys You feel you are not controlling your finances, but your finances are controlling you You are paying for multiple phone lines, multiple cell phones, or multiple TV or computer hookup for your family

27. PERSONAL FINANCIAL PLANNING27 Righting The Priority Inversion: Making the Monster waits its Turn Giving Saving & Investing Debt Service Living Exp

28. PERSONAL FINANCIAL PLANNING28 Keeping The Monster Away Giving Saving & Investing Living Exp

29. PERSONAL FINANCIAL PLANNING29 STUPID MISTAKE #4 Believing that you are what you drive

30. PERSONAL FINANCIAL PLANNING30 You may be making stupid mistake #4 if … You own or lease more than one vehicle per adult family member You own a vehicle of any type that is not used at least twice each week for necessary transportation Your annual vehicle payments total more than 5% of your annual gross income You insist on buying or leasing a brand-new vehicle

31. PERSONAL FINANCIAL PLANNING31 Suggestion Be courageous Buy or lease dilemma Buy almost new If possible pay cash

32. PERSONAL FINANCIAL PLANNING32 STUPID MISTAKE #5 Borrowing Trouble

33. PERSONAL FINANCIAL PLANNING33 You may be making stupid mistake #5 if … You pay by credit card for anything that is perishable or depreciates in value You or your spouse feels lack of a inner peace about your debt load You cannot pay each card’s balance in full at the end of this month and every month Your monthly debt service is keeping you from building your rainy-day fund

34. PERSONAL FINANCIAL PLANNING34 Suggestion Beware of more convenient ways to borrow trouble Stand strong against temptation

35. PERSONAL FINANCIAL PLANNING35 STUPID MISTAKE #6 Ignoring the money-body connection ~Poor health costs good money ~Stupid health style choice wear down your body’s immune *Eating the wrong foods *Getting too little sleep *Failing to exercise consistently *Letting stress dam up inside you ~We are growing older

36. PERSONAL FINANCIAL PLANNING36 You may be making stupid mistake #6 if … You allow the stresses of life to build up inside you You smoke or hang around those who do You don’t have multivitamin or mineral supplement You have not had a physical examination in 2 years or more You engage in concentrated exercise fewer than 3 days per week Your broad mind and narrow waist are trading places

37. PERSONAL FINANCIAL PLANNING37 Suggestions 1. Make water your favourite beverage 2. Give yourself a break 3. Work it out 4. Go to bed 5. Eat for life 6. Conquer an unhealthy habit 7. Laugh 8. Supplement you nutrition 9. Get away from it – soon and often 10. Be proactive with your health

38. PERSONAL FINANCIAL PLANNING38 STUPID MISTAKE #7 Failure to use your powerful 4 friends - A friend is the present you give to yourself

39. PERSONAL FINANCIAL PLANNING39 You may be making stupid mistake #7 if … You are not treating savings for the future as one of your top financial priorities You are over age 35 and are not saving at least 10% of your gross annual income for retirement You do not have at least a portion of your long- term savings invested for growth in stocks or stock mutual funds (equity investments) You’ve pulled money out of your long-term savings and investments to spend on more immediate things

40. PERSONAL FINANCIAL PLANNING40 Your four powerful friends The power of priority The power of tax advantaged saving The power of equity investing The power of compounding

41. PERSONAL FINANCIAL PLANNING41 STUPID MISTAKE #8 Extreme Investing

42. PERSONAL FINANCIAL PLANNING42 You may be making stupid mistake #8 if … You are allowing fear to keep you from investing your long-term savings for growth by means equity investments More than 10% of your long term savings is invested in a single stock or industry sector You are any age and you don’t have nest egg You're over age 40 and have 100% of your nest egg at work in equity investments You’re under age sixty and have less than 50% of your nest egg at work in equity investments

43. PERSONAL FINANCIAL PLANNING43 STUPID MISTAKE #9 Extreme Insurance

44. PERSONAL FINANCIAL PLANNING44 You may be making stupid mistake #9 if … You’ve purchase life insurance on your children You’ve purchased credit life or mortgage life insurance You’re trying to cover every contingency with insurance You’re a key provider for your family and you don’t have disability income insurance You’ve purchased permanent life insurance (a.k.a “whole life”) instead term life insurance

45. PERSONAL FINANCIAL PLANNING45 STUPID MISTAKE #10 Teaching Stupid Mistakes to the Next Generation

46. PERSONAL FINANCIAL PLANNING46 You may be making stupid mistake #10 if … You tend to give your child money and things instead of your time You’d would rather be your child’s friend instead of his parent You don’t require your child to give & save a portion of every dollar she earns Your adult child is still living with you You give in to your toddler’s demand in a grocery store checkout lane You frequently give your child extra money after he’s spent his allowance

47. PERSONAL FINANCIAL PLANNING47 STUPID MISTAKE #11 Financial Clutter

48. PERSONAL FINANCIAL PLANNING48 You may be making stupid mistake #11 if … Your loved ones would not know where to find your key accounts, records, and documents if you should become seriously injured or killed You frequently find yourself crawling among the dust bunnies under your bed in search of important legal and financial records You have not completed a home inventory or updated it within the past 2 years You do not have a written will or have not had your will reviewed and updated recently by an estate planning attorney You have not designated a durable power of attorney and health care proxy

49. PERSONAL FINANCIAL PLANNING49 STUPID MISTAKE #12 Playing someday with your retirement

50. PERSONAL FINANCIAL PLANNING50 You may be making stupid mistake #12 if … You’ve tended to think that life’s too costly now and retirement will have to take care of itself You’ve never calculated how much you need for your retirement You’ve few plans for how you want to spend your days in retirement You believe social security will meet your needs as you grow older You’re 35 or older and are not regularly contributing to a tax-advantage retirement savings plan

51. PERSONAL FINANCIAL PLANNING51 HOW IS FINANCIAL PLANNING DONE? There are several approaches to financial planning: Approach 1 a. Determine where you are now financially b. Determine where you want to be in future c. Detail out how you will get there. Approach 2 I. Data gathering II. Examining your current situation and understanding your needs III. Establishing financial goals and objectives IV. Processing and analyzing information V. Developing strategies VI. Implementing the plan and VII. Monitoring the plan, and periodic reviews

52. PERSONAL FINANCIAL PLANNING52 SOME TECHNIQUES AND TOOLS OF PFP 1. Balance sheet or statement of financial position 2. Profit & Loss or Income account 3. Cash Flow Analysis 4. Budgeting 5. Cost Benefit Analysis

53. PERSONAL FINANCIAL PLANNING53 Statement of financial position This is a listing of what is owned (assets) and what is owed (liabilities). The residual value of total assets less total liabilities represents net worth at a point in time (specific date). Therefore: Net worth = Total Assets – Total Liabilities

54. PERSONAL FINANCIAL PLANNING54 ASSETS 1.Liquid assets Assets that can be readily converted to cash. E.g cash, savings account, current account, money market funds etc 2.Long term assets Asset that are invested over a fairly long period. E.g shares, bonds, real estate, retirement benefits, certificate of deposit etc 3.Personal assets Asset that are not usually available for repositioning to meet financial objectives. E.g cars, private residence, furniture & equipment

55. PERSONAL FINANCIAL PLANNING55 LIABILITIES Generally listed in the order in which the fall due. Starting from short term to long term liabilities. Short Term Liabilities Obligations due within one year. E.g consumer credit obligations, loan installment due, accrued bills etc 2.Long Term Liabilities Obligations due after one year. E.g mortgage loan, share loan, lease obligations etc

56. PERSONAL FINANCIAL PLANNING56 Uses – statement of financial position Determine your financial health (networth) Analyze your assets Analyze your liabilities Increase return on your investments Make financial decisions

57. PERSONAL FINANCIAL PLANNING57 Example Cash N40,000 Mortgage loan 4,000,000 (current balance 2,940,000); market value of home N4,500,000 Motor car N800,000 (market value N1,070,000) Motor car 2 : Purchase price - N600,000; loan amount – N640,000; current loan balance – N480,000; market value - N550,000. Certificate of deposit N550,000 Savings account N200,000 Current account balance N60,000 Other loans N262,000 Other marketable securities N1,094,000 From the information provided below, calculate the net worth of Mr Futuristic as at 14/04/2004

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63. PERSONAL FINANCIAL PLANNING63 THANK YOU