2. Financial Planning Program Unit One

3. A few stats!! One out of three high school students use credit cards. 83% of college students have a credit card and nearly 1/3 have four or more. Only 44% of college students clearly understand the term budget. Only 34% of college students understand the concept of buying on credit. The typical college student carries a credit card balance of $3,200. One out of 10 college students carry a balance of more then $7,800. The proportion of bankruptcy filers under the age of 25 has risen from under 1% in 1995 to more than 5% in 2005.

4. “Most people don’t plan to fail… They simply fail to plan!” 1-A

5. What is Financial Planning? Personal financial planning is the process of: 1. defining goals. 2. developing a plan. 3. putting the plan into action. Financial Planning is an ongoing, thinking process. It can and should change over time as circumstances in your life change.

6. Financial planning helps you do the following: Determine and evaluate your choices Prioritize your choices so your money goes a far as possible. Avoid careless and wasteful spending Organize your financial resources (sources of income) so you can achieve your financial goals. Avoid money worries by planning your saving, spending, and borrowing to live within your income.

7. Elements of a good financial plan Set Goals Analyze Information Create a Plan Implement the Plan Monitor and Modify the Plan

8. The Five-Step Financial Planning Process 1-B

9. Step 1 - Set Goals A goal is a destination, something you want or need, which you acquire by taking certain steps. It gives direction to your plan of action. A goal should be: “SMART” Specific Measurable Attainable Realistic Time-bound

10. Timelines for Goals Short-term – time frame of up to 3 months. Intermediate- between 3 months and 1 year Long-term- over 1 year. Requires patience to achieve and willingness to give up something you want now in return for something better later. This is called delayed gratification.

11. Step 2-Analyze Information Evaluate information about yourself. How do you get your $? How much do you spend each week? What do you spend your $ on? Do you owe anyone $ for stuff you already have? To help you analyze these questions, you can track your cash flow which is a measure of the $ you receive and the $ you spend.

12. Step 3 – Create a Plan Look at your goals and determine how much you need to save each week to attain your goals. Look at your spending over the last week to determine what, if any, $ you have left over. If you have $ left over, you’re ahead of the game and are ready to start meeting your goals. If you don’t have $ left over, it’s time to make some financial decisions.

13. Trade-Offs/Opportunity Cost Decision making- the process of considering and analyzing information in order to make a decision. Trade-offs/opportunity cost - decide which goals to work towards and which ones will have to wait.

14. Insert information on what tradeoffs, opportuny cost/benefits are. Give problems.

15. Step 4 – Implementing the Plan The 3 R’s of Money: –Reality- unless you strike it rich, you have limited amounts of time and money to use. –Responsibility-handle your $ wisely. –Restraint- (delayed gratification)

16. Step 5 – Monitor and Modify the Plan Your plan will change over time due to many obstacles such as: –Goals may change –Resources may change –You many have an unexpected repair bill –You may get money from a long lost aunt Don’t be afraid to revise your financial plan.

17. What is a budget? A budget is a detailed financial forecast used to plan, control and evaluate your spending an saving in order to satisfy immediate needs and reach future goals.

18. Budgeting Terms to Know Fixed expense: expenses that do not change in price month to month (rent, fixed rate mortgage, car payment, etc.) Variable expense: expense that changes month to month sometimes depending on your choices. (food, electricity, etc.) Seasonal expense: an expense that comes around maybe once or twice a year (holiday purchases, real estate taxes, car insurance, spring/summer landscaping, etc.)

19. Budegting terms to know cont. PYF (Pay yourself first) – set a certain amount each month to put in your savings or investing. Put these items at the top of your expenses to be sure you pay yourself first. Gross income – income before deductions. Net income – income after deductions Disposable income – money you have left over after all of your bills have been paid (including PYF).

20. Budget Project (excel) Enter the information given to you in an excel document. Features in excel –Cell alignment –Format cells to currency –Format cells (bold, size, font, etc) –Formulas Steps to project 1.Enter information in cells 2.Format the numbers to currenc y. 3.Enter sum formulas to total expenses. 4.Enter formula to calculate net monthly income. 5.Determine your savings and investing. 6.Determine your total savings at the end of the year at.5% APY compounded.

21. Net Worth Statement Shows a person’s net worth based on your assets and liabilities. Assets: what you own Liabilities: what you owe Assets - Liabilities = net worth Prepare a net worth statement.

22. Credit Management Unit 4 projects.