PERSONAL Quarter 2:

FINANCE Week 2
PERSONAL FINANCE
Personal finance includes all financial decisions and
activities of an individual including budgeting,
insurance, mortgage planning, savings, and
retirement planning.
It involves analyzing current financial positions,
projecting short-term and long-term funding needs,
and executing a plan to fulfil those needs
considering individual financial constraints.
It is primarily dependent on one’s earnings, cost of
living, and personal goals and wants.
PERSONAL FINANCE
PLANNING
PERSONAL FINANCE
PLANNING
A. Objective Setting
• Quantify monetary objectives with definite
time frames.
• Prioritize objectives.
• Examine these objectives with an
individual’s resources and limitations.
PERSONAL FINANCE
PLANNING
B. Data gathering
• Use surveys, questionnaires, and interviews
to gather quantitative and qualitative
information from the individual.
• Quantitative – for assessing financial status
(i.e. investments, cash flow, liabilities, etc.)
• Qualitative – to identify individual’s goals
and objectives, lifestyle, risk-tolerance, etc.
PERSONAL FINANCE
PLANNING
C. Data Analysis
• Analyze the individual’s financial position
and cash flows.
• Review legal papers (i.e. insurance policies,
trust agreements, wills, etc.).
• Evaluate objectives vis-à-vis the individual’s
resources and economic conditions.
PERSONAL FINANCE
PLANNING
D. Financial Plan Recommendation
• Propose financial products.
• At this point, the individual can comment on
the proposed solutions
PERSONAL FINANCE
PLANNING
E. Plan Implementation
• Assist the individual in the execution of the
recommended financial plan.
• Implementation may involve other entities so
assist the individual in dealing with the
parties involved in the execution of the
financial plan.
PERSONAL FINANCE
PLANNING
F. Plan Monitoring
• Review the financial plan periodically to
evaluate changing market conditions (i.e.,
economic conditions, taxes, interest rates,
etc.).
• Evaluate the financial plan regularly to see if
it effectively meets the individual’s goals and
objectives.
SIX KEY AREAS OF
PERSONAL FINANCIAL
PLANNING
SIX KEY AREAS OF
PERSONAL FINANCIAL
PLANNING
A. Financial Position
• Understanding of personal resources by
checking an individual’s net worth and cash flow.
• Net worth = assets less liabilities at a point in
time
• Cash flow = expected sources of income less
expected expenses within a period (i.e. year)
SIX KEY AREAS OF
PERSONAL FINANCIAL
PLANNING
A. Financial Position
• Helps in determining the time frame to which
personal goals can realistically be met.
• May need to answer the following questions:
• Do they have a clear understanding of their
goals?
• How do they track their income, expenses, and
net worth?
• What financial benefits do they get from their
employer?
SIX KEY AREAS OF
PERSONAL FINANCIAL
PLANNING
B. Adequate Protection
• Analysis of protection needed for unforeseen
risks.
• Includes risks of liability, property, death,
disability, health, and long-term care.
• Some insurance plans enjoy some tax benefits.
SIX KEY AREAS OF
PERSONAL FINANCIAL
PLANNING
B. Adequate Protection
• May need to answer the following questions:
• What things can they not afford to lose?
• How will they take care of their dependents?
• How have they planned for financial risks such
as disability, illness, long-term care, and death?
SIX KEY AREAS OF
PERSONAL FINANCIAL
PLANNING
C. Tax Planning
• Management of when and how much taxes will
be paid.
• Understanding possible tax incentives,
deductions, rebates, etc. can have a significant
impact on managing personal finances given the
magnitude of taxes paid by an individual.
SIX KEY AREAS OF
PERSONAL FINANCIAL
PLANNING
C. Tax Planning
• May need to answer the following questions:
• How do they manage their taxes?
• How do they plan the timing of income and
deductions for tax purposes?
• Are they comfortable with the tax environment
applicable to them?
SIX KEY AREAS OF
PERSONAL FINANCIAL
PLANNING
D. Investment and Accumulation Goals
• Planning on wealth accumulation for large purchases such
as house, educational expenses, investments for retirement,
etc.
• May need to answer the following questions:
• What are their goals for wealth accumulation? (i.e.,
education, home, business, retirement comfort, etc.)
• How are their current investments performing to meet their
goals?
• How much will they need? When will they need it?
SIX KEY AREAS OF
PERSONAL FINANCIAL
PLANNING
E. Retirement Planning
• Understanding the cost of retirement.
• Analysis of cash flows to come up with
investment plans that will meet the costs of
retirement in the future.
SIX KEY AREAS OF
PERSONAL FINANCIAL
PLANNING
E. Retirement Planning
• May need to answer the following questions:
How are they preparing for their retirement?
How are their liabilities affecting their
retirement objectives?
Do they think they can maintain their standard
of living during their retirement?
SIX KEY AREAS OF
PERSONAL FINANCIAL
PLANNING
F. Estate Planning
• Planning for disposition of one’s assets after
death.
• Estate taxes paid to the government are huge, so
avoiding these taxes can significantly impact
one’s personal finances.
SIX KEY AREAS OF
PERSONAL FINANCIAL
PLANNING
F. Estate Planning
• May need to answer the following questions:
• How should their assets be distributed upon
death?
• How will their intentions be carried out? (i.e.,
will, trust, power of attorney, etc.)
FOUR SIMPLE HABITS
FOR PERSONAL
FINANCE SUCCESS
Save money
• Spend less than what they earn.
Avoid debt
• Manage their credit and debt wisely.
Invest
• Invest what they save.
Don’t lose it
• Protect their downside by diversification or
insurance.
PERSONAL FINANCE
All financial decisions and activities of an
individual or household like budgeting,
insurance, mortgage planning, savings and
retirement planning
ASPECTS OF
PERSONAL FINANCE
• Assessing current financial position by looking
at expected cash flow, current savings etc.
• Buying insurance to protect oneself from risk
and making sure material standing is secure
• Calculating and filing taxes
• Savings and investment
• Retirement planning
MONEY MANAGEMENT
PHILOSOPHY
1. LIVE BELOW YOUR MEANS. This is the
only way to ensure you save and grow your net
worth.
2. AVOID CREDIT CARD DEBT. There is
perhaps no greater way to damage your financial
well-being than credit card debt.
3. HAVE AN EMERGENCY FUND. This
should ensure you never have to deal with #2.
MONEY
MANAGEMENT
PHILOSOPHY
4. INSURE YOUR NEEDS (NOT YOUR
WANTS). Insurance is exactly that… Insurance.
It provides another margin of safety. Most
importantly, insurance is not a primary vehicle
for creating wealth, merely protecting it.
MONEY
MANAGEMENT
PHILOSOPHY
5. BE POUND WISE. Yes, not buying as many
five-dollar coffees per week will help, but most
important is getting the big-ticket purchase items
right. If you are not sure whether you can afford
the new house or car, revert to #1.
MONEY
MANAGEMENT
PHILOSOPHY
6. MORE THINGS WILL NOT MAKE YOU
HAPPY. Someone will always have more toys
than you. The sooner this lesson is swallowed the
easier #s 1-5 will become.
MONEY
MANAGEMENT
PHILOSOPHY
7. NET vs. GROSS. Taxes will have a big impact
as to how much money you actually “feel.” The
same is true with investment fees’ impact on your
portfolio performance, and thus the length of
time before you become financially independent.
Know how much of your money is going to the
government, your investment advisor, and your
investment products, always.
MONEY
MANAGEMENT
PHILOSOPHY
8. NET WORTH. Before you can map out where
you want to go, you must know where you stand.
Have a loose idea of your net worth. Review at
least annually to track your growth.
MONEY
MANAGEMENT
PHILOSOPHY
9. AUTOMATE. EVERYTHING. Treat your
monthly savings into your 401k, Checking
Account, 529s, etc. just like you would your
monthly cell phone bill, car note, etc. This will
help you to declutter, simplify, avoid late fees,
focus on the important things in your life and
build systematic wealth.
MONEY
MANAGEMENT
PHILOSOPHY
10. FINANCIAL INDEPENDENCE. Work to
be free from the reigns of money, not simply to
“retire.” Once enough money is earned and saved
to provide for all that you need in life, you will
appreciate #6 that much more.
QUESTIONS???