Offers protection against costliest events such as

 Offers protection against costliest events such as flood, fire, major
illness, death
 Need enough insurance to prevent financial ruin at reasonable rates
o Minimization of taxes: ability to pay as little as possible to Uncle Sam
 Need to have enough even after taxes
 Goal is to maximize the cash that is available to you after taxes have been paid
 Creating a budget and investment plan

 Step 4: Implement your plan (the hardest step)
o Keep track of income and spending as well as long term goals
 Use common sense and moderation
o Financial plan is a tool, or road map to achieve goals
 Stay on track after detours; rewards await you
o Don’t be afraid to get lost because you laid out a map and will eventually find your way
 Remain positive
o Build your map as you go
o Keep goals in mind and drive towards them
 Takes the most dedication and sacrifice
 Step 5: Review your progress, reevaluate, and revise your plan
o Set up a new map for your goals once you found your way
o Review progress and reexamine plan, maybe set up a new map and formulate new plan
and see if any fine tuning needs to be done
o Road map to your dreams
o Life changing events will happen, make sure that your plan still matches your goals
o Check where you’re at financially
o Things are going to change, so expect to change your plan many times
 Be prepared to start over if you plan no longer meets your needs
Figure 1.1

Establishing your financial goals
 Short term
o Buying television, taking vacation
o All that can be accomplished in 1 year
 Intermediate term
o College tuition money for 12 yr old, accumulating enough money for down payment on
new house
o 1-10 year to accomplish
 Long term
o Retirement
o 10+ years
 Set up a list of goals, rank them, and be realistic about your goals. Once everything is set in
place, it becomes a cornerstone of your personal financial plan
The life cycle of financial planning
 Changes occur due to unexpected events based on financial life cycle patterns
 Need to plan ahead
o After you finish college, you might need to start saving up for your retirement
o The first 17 or 18 years we have negative income, rely on parents
 After high school hits, we start to pay some of our bills with the jobs we have and
then attend college
 First stage is always a long process of saving and accumulating wealth
 Goal setting, insurance, home buying, family formation

Figure 1.2 Typical individual’s financial life cycle
 Financial goals begin to shift during 2
nd
and 3
rd
stage and continued growth of the wealth that
have been accumulated (begins early 50’s)
 Estate planning – planning for the passage of your wealth to your heirs. (Planning for your
eventual death and the passage of your wealth to your heirs.
 3 rd and final stage begins in mid-to-late 60’s
o No longer saving, but spending during retirement
o Must continue the growth in savings to stray away from inflation (an economic
condition in which rising prices reduce the purchasing power of money)
