Chapter 1
Persnal Financial Plannin: An Inrducin
3
ovERvIEW
Personal nancial planning has many important pieces. We begin with an overview o a six-stepplanning process, which will help you to review, revise, and align your goals with your chang-ing circumstances. We then take a closer look at developing your nancial goals by consideringactors that may inuence your goals and your changing lie situation. We end this section by suggesting guidelines that can help you set realistic goals you can achieve.Since nancial planning does not occur in a vacuum, the next section considers the inuenceo prevailing economic actors including an overview o market orces, nancial institutions,and global conditions that tend to have a major impact on your nancial goals and plans.Although opportunity costs are discussed in step 4 o the nancial planning process, weemphasize the importance o nancial opportunity costs—and, more specically, the time valueo money. ime value concepts and mechanics are key to understanding how uture and present values take into account expectations o ination and interest rates and how compounding anddiscounting translate monies over time.Finally, the last section o this chapter identies strategies that are consistent in the achieve-ment o personal nancial goals. In act, all o the subsequent topics in this textbook are sum-marized to give you a preview o the important areas that will be explored in detail so that yournancial plan considers all important aspects. Tis ramework is the basis rom which you candevelop a way o thinking and, more importantly, implement practices and habits that willbecome the hallmark o eective personal nancial decisions.
tHE FINANCIAL PLANNINg PRoCESS
Everywhere you turn, someone is talking about money. When it comes to handling yournances, are you an
explorer
, someone who is always searching through uncharted areas? Areyou a
passenger
, just along or the ride on the money decision-making trip o lie? Or are you a
researcher
, seeking answers to the inevitable money questions o lie?Most people want to handle their nances so that they get ull satisaction rom each avail-able dollar. ypical nancial goals include such things as a new car, a larger home, advancedcareer training, extended travel, and sel-suciency during working and retirement years. oachieve these and other goals, people need to identiy and set priorities. Financial and personalsatisaction are the result o an organized process that is commonly reerred to as
personal money management
or
personal nancial planning
.
Personal nancial planning
is the process o managing your money to achieve personaleconomic satisaction. Tis planning process allows you to control your nancial situation.Every person, amily, or household has a unique nancial position, and any nancial activity,thereore, must also be careully planned to meet specic needs and goals.A comprehensive nancial plan can enhance the quality o your lie and increase your satis-action by reducing uncertainty about your uture needs and resources. Te specic advantageso personal nancial planning include:
•Increasedeectivenessinobtaining,using,andprotectingyournancialresources
throughout your lietime.
•Increasedcontrolofyournancialaairsbyavoidingexcessivedebt,bankruptcy,and
dependence on others or economic security.
•Improvedpersonalrelationshipsresultingfromwell-plannedandeectivelycommuni
-cated nancial decisions.
•Asenseoffreedomfromnancialworriesobtainedbylookingtothefuture,anticipat
-ing expenses, and achieving your personal economic goals.We all make hundreds o decisions each day. Most o these decisions are quite simple andhave ew consequences. Some are complex and have long-term eects on our personal and
objECtIvE 1
Analyze the process ormaking personal nancialdecisions.
personal nancialplanning
The processo managing yourmoney to achievepersonal economicsatisaction.
Visit the Web site
See the Weblinks underChapter 1 on the OnlineLearning Centre at
www.mcrawhill.ca/ lc/kapr.
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