Personal Financial Planning Lesson with Activities

A plan for Personal Financial Planning

1. - PERSONAL FINANCIAL
PLANNING

SHAHNAWAZ ALI

2. PERSONAL FINANCIAL PLANNING

Why is it important to have a plan before
making a financial decision?

3. Y)
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WHAT IS PERSONAL FINANCE?

+ Personal Financial Planning — Arranging to spend, save and

invest money to live comfortable, have financial security and
achieve goals.

* Goals — Things that you want to accomplish
+ Examples:
» Getting a college education
» Buying a car
» Starting a Business

Planning for your personal finances is important because it will
help you to reach your goals, no matter what they are.

4. BENEFITS OF FINANCIAL PLANNING

* Increase effectiveness in obtaining, using and protecting your
financial resources throughout your life

* Increased control of your finances by avoiding too much debt,
bankruptcy and dependence on others

* Improved personal relationship gained from well-planned and
well-communicated financial decisions

« A sense of freedom from financial worries gained from

looking to the future, anticipating expenses and achieving
personal economic goals.

5. What is your current financial situation?
Make a list of items that relate to your finances:

* Savings
SIXSTEPSTO « Monthly Income (job earnings,
FINANCIAL allowance, gifts and interest on
PLANNING bank accounts
STEP 1 + Monthly Expenses (Money you
DETERMINE spend)
a « Debts (Money you owe to others
SITUATION When you have determined your

financial situation, you will be able
to start planning.

6. ASK YOURSELF > * Is it more important to spend
your money now or to save

for the future?
SIX STEPS TO * Would you rather get a job
FINANCIAL right after high school or
PLANNING continue your education?

+ Will your chosen career

STEP 2 require additional training or
ds education in the future?
* Do your personal values
GOALS . -
affect your financial
decisions?

Values — Beliefs and principles you consider important
correct and desirable.

People value different things.

7. NEEDS VS. WANTS

NEEDS WANTS
Something you must Something you desire or
have to survive would like to have or do
= Food "
= Shelter "
= Clothing 5

Only you can decide what specific goals to pursue.

8. It is impossible to make a good decision unless you

know your options

SIX STEPS TO
FINANCIAL
PLANNING

STEP 3
IDENTIFY
ALTERNATIVE
COURSE OF
ACTION

Suppose that you are saving $500
amonth. You have options:

= Continue the same course of
action. (Do not change)

= Expand the current situation.
(Increase savings to $600)

= Change the current situation.
(Invest in stocks instead of
money going into savings
account)

= Take a new course of action.
(Use $500 to pay off debts)

9. Use the many sources of financial
information that are available:

SIX STEPS TO Financial Specialists
FINANCIAL = Accountants
PLANNING = Bankers

STEP 4 = Financial Planners

= Insurance Agents

EVALUATE sure
YOUR E ax Attorneys
ALTERNATIVE Tax Preparers

Technology
= Computer Software
= Internet

10. SIX STEPS TO
FINANCIAL
PLANNING

STEP 4
EVALUATE
YOUR
ALTERNATIVE

The Media

= Books

= Magazines

= Newspapers

= Radio

= Television
Financial Institutions

= Banks

* Credit Unions

* Insurance and Investment

Companies

Education

= High School Classes

» College Courses

= Seminars

11. Consider the consequences and risks
of each decision you make.

Opportunity Costs:
SIX STEPS TO It is what is gi h
FINANCIAL is what is given up when
PLANNING making a choice instead of

STEP 4 another option.
EVALUATE
ALTERNATIVE o
COURSES OF Choosing involves more
ACTION s
than knowing what you
might give up.

It also involves knowing
what you would gain.

12. Example — The opportunity cost of going to college could be
the benefit of gaining a high paying full time job but losing out
on a good job you had in high school. You will also have to pay
for college.

Evaluating Risks — When you make a financial decision, you
also accept financial risks.

OPPORTUNITY COSTS

& EVALUATING RISKS

13. al

TYPES OF FINANCIAL RISKS

Inflation
Risk
Pa PS

Liquidity Interest
Risk Rate Risk

Personal Income
Risk i Risk

14. RS ECONOMIC CONDITIONS &
FINANCIAL PLANNING

» How can the ECONOMY affect your personal financial
planning or money management?

* The House of Representatives just passed a bill to cut 5
billion dollars a year in food assistance to low income
families. How does this affect the financial planning of the
people that currently receive food assistance?

Economy — The ways in which nations make decisions to
allocate their resources... production and consumption of
goods and services.

15. EVALUATING RISKS

= Inflation Risk — If you wait to buy a car
until next year, you accept the possibility

SIX STEPS TO that the price many increase.
FINANCIAL = Interest Rate Risk - Interest rates go up or

PLANNING down, you may affect the cost of
STEP 4 borrowing or the profits you earn when
EVALUATE you save or invest.
ALTERNATIVE = Income Risk — You may lose your job due
COURSES OF to unexpected health problems, family
ACTION problems, an accident or changes in your
field of work.

= Liquidity Risk — Liquidity is the ability to
easily convert financial assets into cash
without loss in value. Some long-term
investments, such as a house, can be
difficult to convert quickly.

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Databases, Tables & Calculators by Subject
CPI Inflation Calculator

UNDERSTANDING INFLATION

INFLATION RISK

Minimum Wage

17. | What it Measures

How it Influences Financial Planning

Interest Rates

i=

The value of a
dollar and it
changes with
inflation

Demand for
goods and
services by
individual and
households

Cost of money,
cost of credit
when you
borrow and the
return on your
money when
you save or
invest

If consumer prices increase faster than
wages, the value of the dollar decreases
(A dollar buys less than it did before.)

Consumers tend to buy fewer goods
and services.

Increased consumer spending usually
creates more jobs and higher wages.

Reduced consumer spending causes
unemployment to increase.

Higher interest rates make borrowing
money more expensive and make
saving more attractive.

When interest rates increase, consumer
prices tend to increase.

18. Economic
Condition

Money Supply

Unemployment

What it Measures

The dollars available
for spending in our
economy

The number of people
without jobs who are
willing and able to
work

How it Influences Financial Planning

The Federal Reserve Systems (The
FED) sometimes adjusts interest
rates in order to increase or
decrease the amount of money
circulating in the economy.

e Ifthe FED lowers interest rates,
the money supply increases.

e Ifthe FED raises interest rates,
the money supply decreases.

e Low unemployment increases
consumer spending.

e High unemployment reduces
consumer spending.

19. A plan of action is a list of ways to
achieve your financial goals.

SIX STEPS TO !fyou want to increase your savings
FINANCIAL = Cut back on spending
PLANNING = Increase your income

STEP 5 o Get a part time job
A o Work more hours at your present

CREATE YOUR ‘
FINANCIAL job
PLAN OF o Take part of your current income
ACTION and invest it

Create a budget

21. Dre

PLANNING FOR THE
ROAD AHEAD ///

» Focus on your specific needs and goals

+ Use those to shape decisions on your investment, retirement,
education, taxes, insurance and estate planning

+ The path to financial security can be challenging

22. I es

WHAT TO EXPECT IN
A FINANCIAL PLAN ///

+ Acustomized, unbiased proposal based on your unique needs,
resources and goals

+ Practical strategies to navigate the complexities of your
financial life, building on strengths and addressing weaknesses

» Flexibility to handle the good, bad and unexpected in personal
and professional lives

+ Help monitoring and revising to meet your goals as well as
your lifestyle

23. i

Dre

WHAT ARE YOUR NEEDS? ///

A clear understanding of where you are and where you
want to be

Income tax planning Education planning
and preparation

Estate planning Strategic business .
planning and consulting
Retirement planning @) Risk management planning

Investment planning

OICIOO,

24. INCOME TAX PLANNING
AND PREPARATION

+ Impact of tax-law changes

+ Short- and long-term planning

+ Reducing future liability
+ Dealing with the IRS

25. + Review wills, trusts and retirement
plans

» Keep all documents up to date

Preserve assets for the next
generation and reduce tax liability

» Honor your wishes

26. (2) RETIREMENT PLANNING

+ What does your retirement
dream look like?

+ How much is needed to
get there?

+ Primary sources of retirement
income and distribution models

+ Tax-efficient financial choices
can be considered

27. INVESTMENT PLANNING

+ Risk tolerance

+ Asset allocation and cash flow
+ Investment options

+ Tax implications

+ Strategies for financial
setbacks or windfalls

28. + Strategies for consideration
» Tax credits and deductions
+ Involving your children

+ Updating your plan to reflect
life-event changes

29. Arealistic business plan
» Organizational structure
Financing

Employee benefits, executive
compensation, retirement
plans, insurance and other
considerations

Integration with personal
financial goals and plan

30. Protection of assets

Understanding liability in
business ventures

Affect of loss on income or
assets

World events, both natural and
man-made

31. SIX STEPS TO
FINANCIAL
PLANNING

STEP 6
REVIEW AND
REVISE YOUR
PLAN

* As you get older, your

finances and needs will
change.

* Your financial plan will
have to change too.

* Re-evaluate and revise
your financial plan every
year.

32. “2 — TYPES OF FINANCIAL GOALS

1. Time Frame to Achieve Goal
2. Type of Financial Need that Inspires your Goals

Time Frame to Achieve Goal
= Short Term Goal = Less than one year
= Intermediate Goal = One to five years
= Long-Term Goals = More than five years

Intangible items (something you cannot hold or touch) are often
overlooked but can be very expensive.

They often are items you consider when weighing the
opportunity cost of something.

33. Vay
PERSONAL AND FINANCIAL
OPPORTUNITY COSTS AND STRATEGIES

Whenever you make a choice, you have to give up, or
trade off, some of your other options. When making
your financial decisions and plans, you must weigh, or
consider both the personal and financial opportunity
costs carefully.

Can you think of examples?
FE 7

34. OPPORTUNITY COST

What is an opportunity cost? (in your own words)

Personal Opportunity Costs — Making choices about how you
spend your personal resources

» Health EH
- Knowledge |
» Skills
» Time

35. Y)
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OPPORTUNITY COSTS

Y Do you eat a lot of junk food and avoid exercise?
y Do you get enough sleep for an exam the next morning?

y Do you study for a test or go a concert you were invited
to?

HAVE YOU HAD ANY
PERSONAL OPPORTUNITY COSTS LATELY?

You cannot do both because people have a limited

amount of time.

36. “=> FINANCIAL OPPORTUNITY COSTS

Making choices about how you spend your money.

Do you buy new Nike Jordans at the mall for $119.00 plus tax
or do you save your money?

Spending money instead of putting it in your savings account
can mean lost interest earnings.

You cannot do both because most people have a limited
amount of money.

College Spending = BUDGET

37. se

FINANCIAL STRATEGIES

Financial planning involves choosing a
career and then learning how to
protect and manage the money you earn.

38. 8 STRATEGIES TO AVOID
COMMON MONEY MISTAKES

. OBTAIN — Obtain financial resources by working, making
investments and/or owning property.

. PLAN — The key to achieving your financial goals and financial
security is to plan how you will spend your money.

. SPEND WISELY — Many people spend more than they can
afford. Other people buy things they can afford but do not
need. Spending less than you earn is the only way to achieve
financial security.

. SAVE — Long-term financial security starts with a savings plan.
If you save on a regular basis, you will have money to pay your
bills, make major purchases and cope with emergencies.

39. 8 STRATEGIES TO AVOID
COMMON MONEY MISTAKES

5. BORROW WISELY — When you use a credit card or take out
another type of a loan, you are borrowing money. Borrowing
wisely, and only when necessary, will help you achieve your
financial goals and avoid money problems.

6. INVEST — Investing increases current income and helps to achieve

long-term growth.

7. MANAGE RISK - To protect your resources in care you are ever
seriously injured, get sick or die, you will need insurance coverage
to protect you and those who depend on you.

8. PLAN FOR RETIREMENT — When you start to plan for retirement,
consider the age at which you would like to stop working full time.
You should also think about where you will want to live and how
you will spend your time (part time job, doing volunteer work or
enjoying hobbies or sports).

40. PERSONAL FINANCIAL
PLANNING

MRS. GRAY

41. DEVELOPING AND USING A
FINANCIAL PLAN

Dr

A good personal financial plan includes assessing your
present financial situation, making a list of your current
needs and planning for future needs.

Making your financial plan work

takes time, effort and patience
but you will develop habits that lia
will give you a lifetime of RS

satisfaction and security. w

42. MONEY MANAGEMENT
Google NEWS CURRENT EVENT

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+ Find a current event using GOOGLE NEWS
* Search using topics we have discussed in class
* “Personal Finance” “Money Management” “Economy 2014”
“ Consumer Spending” “Unemployment” “Interest Rates”
ADD TEENAGER - YOUNG ADULT
YOUR CHOICE!!!

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43. PERSONAL FINANCIALLY
PLANNING EQ

+ Why is it important to plan before making a financial
decision?

+ Laptop, Cell Phone, Car, House, Education, Career

« As a high schooler, what difference does it make how |
spend my money now?

+ Savings, habits, Investments, emergencies, risks vs benefits

+ What are your financial goals? Which goals are needs
and which are wants?

+ People have a variety of choices when making
purchases. What are the benefits of shopping at thrift
shops, discount stores and stores that sell used
merchandise?

44. PERSONAL FINANCIAL
PLANNING EQ

+ Do you think purchasing money management software is
worth the investment? What is money management
software?

+ Which resources might you contact if you want
information about saving for college or assistance paying
for college?

+ What strategies can you use to reach your financial
goals?

+ What are some you many have in ten years from now
that you do not have today?

45. ¡WAY
PERSONAL FINANCIAL
PLANNING EQ

+ How can opportunity costs be evaluated differently by
different people?

+ How can a need for one person may be a want for
another?

» What factors might play a part in the revision of your
financial plan as you get older?

+ Interpret the phrase “spend money to make money” and
explain how it relates to personal finance.

46. MONEY MANAGEMENT
DO NOW

= Make a list of five items you would like to buy
" Estimate the cost of each item
= What is the benefit of each item?

How much time do you think it will take to save the
money for each item?

How can this an be considered financial
planning?