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Offers protection against costliest events such as flood, fire, major illness, deathNeed enough insurance to prevent financial ruin at reasonable ratesoMinimization of taxes:ability to pay as little as possible to Uncle SamNeed 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)oKeep track of income and spending as well as long term goalsUse common sense and moderationoFinancial plan is a tool, or road map to achieve goalsStay on track after detours; rewards await youoDon’t be afraid to get lost because you laid out a map and will eventually find your wayRemain positiveoBuild your map as you go oKeep goals in mind and drive towards themTakes the most dedication and sacrificeStep 5: Review your progress, reevaluate, and revise your planoSet up a new map for your goals once you found your wayoReview progress and reexamine plan, maybe set up a new map and formulate new plan and see if any fine tuning needs to be doneoRoad map to your dreamsoLife changing events will happen, make sure that your plan still matches your goalsoCheck where you’re at financiallyoThings are going to change, so expect to change your plan many times Be prepared to start over if you plan no longer meets your needsFigure 1.1
Establishing your financial goalsShort termoBuying television, taking vacationoAll that can be accomplished in 1 yearIntermediate termoCollege tuition money for 12 yr old, accumulating enough money for down payment on new houseo1-10 year to accomplishLong termoRetirement o10+ yearsSet 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 planThe life cycle of financial planning Changes occur due to unexpected events based on financial life cycle patterns Need to plan aheadoAfter you finish college, you might need to start saving up for your retirementoThe 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 wealthGoal setting, insurance, home buying, family formation
Figure 1.2 Typical individual’s financial life cycleFinancial goals begin to shift during 2ndand 3rdstage and continued growth of the wealth thathave been accumulated (begins early 50’s)Estate planning– planning for the passage of your wealth to your heirs. (Planning for youreventual death and the passage of your wealth to your heirs.3rdand final stagebegins in mid-to-late 60’s oNo longer saving, but spending during retirement oMust continue the growth in savings to stray away from inflation (an economiccondition in which rising prices reduce the purchasing power of money)