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Unformatted text preview: Chapter 1, AY 2008-09 7/20/2009 CHAPTER 1 Wealth Planning or Personal Financial Planning 1 Managing Personal Finances
2 ways: Reactive Approach Proactive Approach pp 2 Needs for Personal Financial Planning Improve standard of living likelihood of financial disasters Invest optimally Accumulate wealth Minimise 3 Chapter 1, AY 2008-09 7/20/2009 Accumulating Wealth
Wealth accumulation is to: direct our financial resources to the most productive area maintain the current consumption at a level that provide a desired standard of living Wealth at any one time = f (Total value of all items an individual owns) = f (Financial or intangible and tangible assets)
- or Financial Assets Earning assets, held for future returns Saving a/c, securities (stocks, bond, mutual funds etc...) Tangible or Physical Assets Held for either consumption (e.g. home, car, jewelry) or investment purposes (e.g. rental property) 5 Financial Planning Process Taking conscientious and systematic steps toward fulfilling your financial goals a life long activity because needs and goals change as personal circumstances change 6 Chapter 1, AY 2008-09 7/20/2009 5 Steps in Financial Planning Process:
1. 2. 3. 4. 5. Define financial goals and objectives Assess current financial resources Develop financial plans and strategies to achieve goals Implement financial plans and strategies Monitor results and revise goals and plans as needed
7 1. 2. Define financial goals & objectives Assess financial resources 3. Develop financial plans Asset acquisition Insurance plans Savings & investment plans Tax plans Retirement & estate plans 4. Implement Plans 5. Monitor results and revise goals
8 Financial Goals
Financial goals or desires are not static, they change as the personal circumstances change, over your i t h lifetime 9 Chapter 1, AY 2008-09 7/20/2009 Putting target dates on financial goals: Short-term goals--to be accomplished within the g next year. Intermediate-term goals--to be accomplished in the next 2-5 years. Long-term goals--to be accomplished in time periods greater than 5 years. 10 Financial goals form the basis for your financial plans, therefore, it is important to set SMART goals. Differentiate realistic and unrealistic financial goals Question What are the possible "Financial Shocks"? 11 To attain your financial goals: Be specific in defining goals and focus on results. Make goals realistically attainable attainable. Prioritize goals and set a definite time frame. 12 Chapter 1, AY 2008-09 7/20/2009 From Goals to Plans: A Lifetime of Planning Early childhood High school and g Family college g formation Career development Pre-retirement Pre Retirement
13 Financial Planning Lifecycle
Early Childhood Family PreRetirement Formation Career Retirement Development High Income Stream School & College Retirement/ Estate Tax T Savings/ Investmen Liability/Insurance t Asset Acquisition 10 20 30 40 50 Age 60 70 80 14 Rewards of Personal Financial Planning Better management of financial resources Improved standard of living Increased wealth 15 Chapter 1, AY 2008-09 7/20/2009 Benefit of Planning
Growth of $1000 at 8% & 10% interest:
$50,000 45,259 $40,000 10%
$30,000 $20,000 17,449 21,725 8% $10,000 2,594 6,727 10,063
Years $0 0 10 20 30 40 16 The Planning Environment
Financial planning is carried out in an economic environment created by the interactions of : Government Financial Institutions Other Investors 17 Q. What would be your choice of investment in a highly inflationary environment, why? Q. How does interest rate influence the decisions of an investor, and a borrower? 18 Chapter 1, AY 2008-09 7/20/2009 What Determines Your Personal Income? Age Marital Status Education Career 19 People fail to plan, plan to fail 20 ...
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This note was uploaded on 04/15/2011 for the course BF 221 taught by Professor Lee during the Spring '09 term at Nanyang Technological University.
- Spring '09