Transcript Financial Planning - Indian Creek Middle School

Chapter 9
Financial Planning
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Section 1
Looking at Your Finances
Objectives
– Explain the benefits of financial planning;
– Describe steps in financial planning; and
– Recognize how life stages and events can affect
financial plans.
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Benefits of Financial Planning
– Living within your means
• Make smart choices about spending based on resources.
– Does not always have to have the biggest house, fastest car, or
newest clothes all at once
• Challenge for teens that have their own income
– Do not have to pay for groceries, electric bill, rent, etc.
– Premature Affluence – False sense of wealth
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Elements of Financial Planning
• Making a budget
• Choosing investments that allow your money to grow over
time
• Establish credit and manage it wisely
• Obtain adequate insurance to protect against loss
• Make decisions about retirement plan choices and other
employee benefits
• Set up an estate plan to administer your property
according to your wishes
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– Identify Financial Goals
• What is important to you and your family
– Examples:
» Saving for college education
» Moving to a neighborhood with a better school and parks
» Being able to afford the supplies for your hobby
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– Assessing Current Finances
• Identify goals
• Evaluate current state of your finances
• Create a balance sheet
– Statement of what you own and what you owe.
– Assets
» Items of value that you own, including money
– Liabilities
» Debts, money that you owe others
– Net worth
» Difference between your assets and liabilities
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– Net worth increases when your assets increase or
your liabilities decrease
– Net worth decreases when your assets decrease or
your liabilities increase
– Because your net worth changes, you should update
your balance sheet at least once a year or whenever
your assets or liabilities change dramatically.
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– Analyzing Spending Habits
• Helps understand where your money goes
• Small expenses can add up to large amounts over time.
• Keep a record of all spending during a typical month
– Keep receipts, record all checks
– At end of month, review spending habits
– Categorize spending; use what works for you
» Food, housing, clothing, transportation, entertainment, etc.
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• Analyze your expenses
– Why are certain expenses high
– How can you reduce this expense
• Look for poor spending habits
– Impulse purchases on your credit card
This will help you make better purchases.
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– Planning for Financial Goals
• Goals should be specific, measurable, and achievable.
• Identify resources – use them effectively
• Use management process
– Create, organize, implement, and evaluate your plan
• Follow the above steps to make wise financial choices
• Take personal responsibility for your own financial plans.
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Adapting to changing needs
– You can’t predict future.
– Adjust your planning as personal or family
circumstances, needs, and values change.
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– Family Life Stages
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Marriage
Parenthood
Children moving out.
Aging
Family life stages can be affected by changing
demographics (having to do with statistics about a
population).
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– Family Crisis
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Loss of job
Divorce
Death or injury of a spouse
Natural disaster
Keep an emergency reserve fund or cash
Insurance (health, life, home)
Seek help from others to manage the financial strain
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Section 2
Using Financial Software
Objectives
– Explain the purpose and benefits of a budget; and
– Describe how to create and use a budget.
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What Can Financial Software Do?
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Checkbook and other transactions
Expense tracking
Budgeting
Automatic reminders
Financial Review
Income tax planning
Investment tracking
Planning calculators
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- Online Banking Features
• Online-banking - conducting business with financial
institutions over the internet
• Online bill payment – paying bills electronically over
the internet rather than sending a mail
• Online bill presentment – receiving bills over the
internet
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Should you use financial software?
Advantages
– Easier to organize
– Enter data correctly
– Use help button on
screen
– Review finances because
it is easier to do.
Disadvantages
– Not necessary
– Cost for purchasing
and upgrading
– Need good computer
skills
– Time to learn the
program
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Choosing a package
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Evaluate features you need
Research
Think about future needs & wants
Evaluate cost
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Tips for using software (protect your data)
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Make regular backups
Learn basic features first
Use helpful resources
Be aware of upgrades
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Section 3
Creating a budget
Objectives
– Explain the purpose and benefits of a budget; and
– Describe how to create and use a budget.
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Why make a budget?
If it is created and used effectively, it can help you…
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Avoid running out of money between paychecks
Evaluate your spending habits and make better choices
Set aside savings for unexpected expenses
Work toward your financial goals
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Setting up your budget
• set up for a year, divided into months
– Estimate income
• Gross income – total amount of money you expect to
earn before taxes and other paycheck deductions
• Net income – amount of money you expect to receive
after paycheck deductions; take home pay
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– Estimate expenses
– general categories, help identify whether you budget and spend
your money are consistent with financial goals.
• Fixed expenses – regular payments that do not vary in
amount.
• Variable expenses – increase or decrease each month
– Methods of estimating your expenses. May combine them.
» Your past spending record.
» Expert recommendations
» National Averages
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– Plan for savings
• One of the most important categories
• Money left over? Should do this category first to make
sure it gets done.
• Helps build emergency fund in case of a job loss or
unanticipated expense
• Helps reach long term financial goals
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– Balance the Budget
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After estimating income and expenses
Add all of your projected income for a month
Subtract all of your expenses for the same month
Discretionary expense – not absolutely necessary
such as vacations or entertainment
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• Ways to increase income
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Work more hours
Aim toward a promotion
Look for better paying job
Take on a 2nd job
New job may result in increases expenses for items such as
clothing, transportation, and child care.
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Using Your Budget
– Adjusting your spending
– Revising budget amounts
Evaluate the Budget
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Section 4
Organizing Your Records
Objectives
– Explain reasons for keeping certain records and
documents;
– Identify types of records and documents to keep and
for how long; and
– Describe ways to store and organize records and
documents.
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Why keep records?
 For identification
 For legal proof
 For loan applications
 For tax purposes
 For budgeting purposes
 To verify transactions
 For reference
 For medical reasons
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How long to keep records
– Permanently – birth certificate, social security card
– Page 226; Figure 9-11 (Need to know)
– Use common sense
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Storing Records and Documents –
– Safe Deposit box – locked box that can be rented in a
secure area of a bank
– Home safe or lock box – less secure than a safe deposit
box
– Home filing system
– Electronic storage – financial software files, spreadsheets,
and word processing files
– Billfold – Identification, i.e. driver’s license
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Reviewing Records
– Once a year
– Beginning of a year is good time to help prepare for
your tax return
– Discard or archive old records
– Review contents of safe deposit box
– Update list of accounts and your inventory of where
records are stored
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Section 5
Seeking Professional Advice
Objectives
– Identify sources of professional financial and legal
advice; and
– Analyze factors to consider when seeking
professional advice.
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What help do you need?
– Financial professionals will help you plan and
manage your finances in exchange for a fee.
– Financial course in management
– Be realistic of what a financial planner can do
– What kind of help do you need?
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Who is qualified to help?
– Credentials – licenses, certifications, or degrees
that indicate that a person is qualified to perform a
certain service
– May advertise themselves using a variety of general
terms
– Do not tell you what education, training, and
expertise the person has.
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Certified Financial Planner (CFP)
Chartered Financial Consultant (ChFC)
Accountant
Insurance agent
Attorney
• Pro bono – provide legal services at no charge to clients
who face extreme financial hardships
– Stockbroker
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Fees and Commissions
– Some are paid a set fee for their services
– Others earn a commission (percentage of the dollar
amount of investment products sold to the client)
– Others are paid a combination of fees and
commissions
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Choosing a professional
– Takes research and planning
– Professional Associations can give you names of
qualified financial experts in your area.
– Ask family members and friends
– Schedule a meeting and ask questions
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Stay focused on your goals
• Once financial professional chosen, remember that he or
she is no more than an advisor.
• You set your own goals and make decisions.
• Review your financial plan with your advisor and make
changes as necessary.
• Evaluate the advisor you have chosen
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