final wk 6
dfresh90
ExampleFinalProjectPowerpoint.pptxChapter 0ne: Understanding the Financial Planning Process
Without financial planning, reaching financial goals is difficult if not impossible. Let's say you're planning to drive from New York City to Los Angeles, what path would you take? How long would it take you? Where would you stop along the way and why? Just like navigating the best route for a road trip, personal money management requires an organized plan.
Different factors influence a person's goals and decisions. While some individuals desire a new car or home, others want to travel, maintain good credit, plan for retirement or simply save.
1
Define Financial Goals
As you develop your financial goals, recall the first tip from Chapter One which discussed setting your goals. Your goals should be SMART, that is specific, measurable, attainable, realistic, and time-based. You should also develop short-term, intermediate, and long-term goals. Developing each of these types of goals will allow you to achieve successes early in the plan while also keeping your eye toward the future.
Short-term or intermediate goals may also serve as stepping stones to reach long-term goals.
For instance, a short term goal of saving $200 a month may help you accumulate funds for the down payment on a home. Setting short-term, mid-term and long-term financial goals is an important step toward becoming financially secure. If you aren’t working toward anything specific, you’re likely to spend more than you should. You’ll then come up short when you need money for unexpected bills, not to mention when you want to retire. You might get stuck in a vicious cycle of credit card debt and feel like you never have enough cash to get properly insured, leaving you more vulnerable than you need to be to handle some of life’s major risks.
An intermediate goal of paying off student loan debt a year ahead of schedule may help you free-up monthly income that could instead be used to make a car payment.
These first steps are relatively easy to achieve. While you can’t make $2 million appear in your retirement account right now, you can sit down and create a budget in a few hours, and you can probably save a decent emergency fund in a year. Here are some key short-term financial goals suggestion that will start helping right away, and get you on track to achieving longer-term goals.
2
Goals must include a plan of action
The next step of the financial planning process involves identifying alternative courses of action that can lead you to your goals.
In exploring the ways to pay off credit card debit, options might include:
Look at your credit card statement. If you pay the minimum balance on your credit card, it takes you much longer to pay off your bill. If you pay more than the minimum, you’ll pay less in interest overall. Your card company is required to chart this out for you on your statement, so you can see how it applies to your bill.
Simple solution: Pay a bit extra each month. Every dollar over the minimum payment goes toward your balance—and the smaller your balance, the less you have to pay in interest.
Another suggestion would be to take advantage of a low balance transfer rate to move debt off high-interest cards. Be aware that balance transfer fees are often 3–5 percent, but the savings from the lower interest rate may often be greater than the transfer fee. Always factor that in when considering this option.
Or you might consider if you have equity in your home, you may be able to use it to pay down card debt. A home equity line of credit may offer a lower rate than what your cards charge. Be aware that closing costs often apply, but an extra benefit is that home equity interest payments are often tax-deductible.
3
Important to gather and review the data
To build the foundation of a solid financial plan, take an honest and detailed assessment to determine your current financial situation. Understand current income, debt, monthly living expenses, savings or any other financial aspect of your present situation.
However, Before you can begin setting goals and developing strategies to achieve them, it is important to understand where you are now.
The first step in creating your personal financial plan is determining your current financial situation. Having a thorough understanding of your current financial situation will help you to formulate realistic and well-informed goals. Taking a detailed look at your situation may also help you identify specific changes you could make to change your situation and help you achieve the goals you will create later in the planning process.
To gain insight into your current situation, it can be helpful to determine your current net worth. To calculate your net worth, you will need to total your current liabilities and subtract them from your total current assets. Assets are simply what you own that has value.
These include: cash and cash equivalents, such as physical cash on hand, checking accounts, or savings accounts; personal property, such as equity in a home, other real estate owned, or a car; and invested assets, such as stocks, bonds, or pensions. Liabilities include value of what you owe including current bills and outstanding debt. Utilizing the charts below, calculate your current net worth.
4
Life Cycle of Financial Planning
http://mainstreetwealthgroup.com/wp/wp-content/uploads/2011/12/Life_Events_of_Financial_Planning.pdf
Financial and tax planning are frequently done in a vacuum without consideration of the changing risks that one faces over one’s lifetime. The passage of time alters the nature of the risks, and requires you to reconsider how you are managing them and whether you should reprioritize them at different times of your life. Life-cycle financial planning helps you understand the dynamic nature of the financial risks presented and develop a plan that evolves over time to meet those changing needs.
It is important to remember that financial planning changes with our life cycle.
For instance:
The later working years (ages 45 to 65) The later working years are characterized by paying college tuition, helping children become financially independent, possibly caring for your parents or parents-in-law and paying off your mortgage. During the later working years, it’s important to:
Prepare for a chronic illness with long-term care insurance. During the later working years, life insurance might become less critical for your planning, except for life insurance that is needed for estate tax planning or that can pay for chronic illness.
5
