1. PF 8.02 Understand personal financial planning (Unpacked Content)

2. Financial Planning Used for planning ways to reach financial goals
A continual, cyclical process of tracking, then anticipating, income and expenses
Steps in the process of financial planning
Identify financial goals
Prepare a balance sheet showing what you own and what you owe
Track income and expenditures for a set time period, usually a month, and record in an income and expense statement
Analyze amount of money earned and how it was spent
Prepare a spending plan with anticipated income and expenses to meet financial goals during the next time period
At the end of the time period, revise financial goals, if needed, and use the actual income and expenses to again analyze income and how it was spent
Prepare your next spending plan
Note that three types of financial statements, shown above in bold font, are needed for financial planning.

3. Benefits of Financial Planning
Learn to live within one’s means
Helps avoid financial difficulties
Have resources for one’s desired standard of living
Reduces the need to use credit
Increases sense of security
Lessens anxiety about money matters
Stay in control of finances
Become financially independent

4. Financial Statements *Balance Sheet*
Shows assets, liabilities, and net worth of an individual or family
Reason needed: need to know financial status in order to plan finances

5. Financial Statements *Income and Expense Statement*
Also known as cash flow statement
A list of all income and expenses for a specified time period
A historical type of record that serves as the basis for a spending plan
Shows whether individual/family was able to live within his/her/their means
Shows where income was spent
Shows when expenses exceed income and areas of excess expense
Shows if income was sufficient to meet expenditures

6. Financial Statements *Spending Plan*
Also known as a budget or a financial plan
A tool used to plan income and expenses for a future time period
Used to track income and expenditures
Used to evaluate spending at the end of a time period

7. Financial Statements Comparison

8. Income & Expense Statement
Time Orientation
Income & Expense Statement
Past---a historical record of what was earned and spent
Spending Plan
Future ---a projection of anticipated earnings and expenditures

9. Income & Expense Statement
Basic Use
Income & Expense Statement
Used as a foundation for planning one’s finances
Spending Plan
Used to estimate finances for a future time period

10. Income & Expense Statement
Specific Uses
Income & Expense Statement
Shows if living within means
Shows where money was spent
Shows when too much is being spent on a certain category of expenses
Shows if additional income is needed to meet necessary expenses
Spending Plan
Helps one live within means
Helps plan where to spend money
Helps track income and expenditures
Reduces the likelihood of having to use credit and go into debt

11. Where it Fits in Financial Planning
Income & Expense Statement
Is used to develop a spending plan
Spending Plan
Becomes the income and expense statement at end of specified time period