Personal Financial Planning

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Personal Financial Planning

• Chapter 1, Taking Charge of your Finances

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Introduction to Financial Planning

• Why do financial planning? It requires that you
• Define ___________
• Make decisions about ______________
• Know where your money goes
• Financial planning gives you ______________
  creates __________________ for the future

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Take Charge of the Finl Planning Process

• Steps
• Determine where you are
• Set goals
• Develop a plan
• Keep simple records
• Make a budget
• Deal with shortfalls, credit debt
• Review your progress

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Step 1 Where You Are Financially

• There are two parts to where you are
  financially
• ___________________________
• ___________________________

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Step 1 Where You Are Financially

• Calculating net worth (personal balance sheet)
• To calculate net worth, identify
• Assets (_at_ _____________________ value)
• Liabilities (debts)
• Net worth assets - liabilities

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Step 1 Where You Are Financially

• Analyzing cash flow has two parts
• ____________________
• ____________________

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Step 2 Set Goals

• Your goals should be based on what is important
  to you.

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Step 3 Develop a Plan

• Primary concerns
• Flexibility
• Liquidity
• Tax reduction

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Steps 45 Records Budget

• Records Find a ______________ system you will
  use.
• Budget Establish _________________ on spending,
  by category.

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Step 6 Deal With shortfalls, Credit Debt

• Many people get into trouble with debt, often due
  to impulsive or compulsive spending and credit
  cards.

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Step 6 Deal With shortfalls, Credit Debt

• Before buying with credit, think
• Can I pay it off?
• Is it consistent with my goals?

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Step 6 Deal With shortfalls, Credit Debt

• In 2005 2,039,214 Americans declared bankruptcy.
• More Americans declare bankruptcy each year than
  graduate from college.

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Step 6 Deal With shortfalls, Credit Debt

• Most bankruptcies result from
• Uncontrolled use of credit cards
• Medical expenses
• Unexpected setback (loss of job, personal injury,
  etc)

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Step 7 Review Progress

• Review your situation at least annually.
• Have goals changed?
• Are you meeting your budget?
• Progress toward goals?

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Personal Financial Planning

• Chapter 2, Building Wealth

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Investing for Retirement

• Will you be able to retire?
• When?
• At what standard of living?
• How much will you need to retire?
• Will social security be there for you?

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Investing for Retirement

• Employer-sponsored retirement
• In 1980, 70 of full-time employees worked for
  employers with a defined ___________________
  retirement program.
• After working 10 to 20 years for the same
  employer, you qualified (were vested) for a
  pension based on years of service and your
  salary.

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Defined Benefit Retirement Program

• Defined benefit your pension is based on a fixed
  formula.
• Once vested in a defined benefit retirement
  program, your pension upon retirement (after 20
  years of employment, say) might be
• Annual pmt 20 x 2.5 x highest years salary

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Investing for Retirement

• Most people retiring now worked much of their
  lives for employers that offered defined benefit
  retirement pensions.
• However, few retirees qualify for a pension.
• For those who retired last year, only
  _________ of income comes from defined benefit
  pensions.

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Investing for Retirement

• In 2008, most employers offer a defined
  ___________________________ plan
• A portion of your salary is withheld
• Employers sometimes match your contributions
• Participation is often voluntary
• _______________ decide how your funds are
  invested

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Investing for Retirement

• Median U.S. income
• All married couples 50,000
• Newly retired couples 29,000
• Approximately 19,000 from Social Security
• Approximately 10,000 from all other sources
  (largely part-time employment)

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Investing for Retirement

• Of U.S. households headed by someone 75 or older,
  43 have annual income less than 15,650.

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Investing for Retirement

• Do Americans save enough for retirement?
• NO!

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Investing for Retirement

• The median amount of total savings and
  investments (including retirement accounts) that
  U.S. adults have is less than _________.
• Less than 25 of working adults are very
  confident of having enough money to retire.
• Only 42 have tried to calculate how much they
  need for retirement

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Investing for Retirement

• To save and invest for retirement
• Use Payroll deduction
• Among the benefits of payroll deduction
• Easy
• Employers often match your contributions
• Uses tax shelters (401k, 403b, IRA)