Personal Financial Plan & Management – Financial Management
These financial management chapters detail personal finance, personal financial goal and personal financial plan & management.
What does budgeting balance?
Income and spending
What does liquidity deal with?
Cash excesses or shortages
How can you benefit from understanding P’snl FINN?
Make your own financial decisions
Every spending decision has an opp cost
Judge financial advisor’s advice
Many career opp available
Components of a Financial Plan
1. Budgeting and tax planning
2. Managing your liquidity
3. Financing your large purchases
4. Protecting your assets and income (insurance)
5. Investing your money
6. Planning your retirement & estate
Liquidity
Access to funds to cover any short-term cash deficiencies
Money Management
Decisions regarding how much money to retain in a liquid form
and how to allocate the funds among short-term investment instruments
Credit Management
Decisions regarding how much credit to obtain to support your
spending and which sources of credit to use
Insurance Planning
Determining the types and amount of insurance needed to protect
your assets
Types of insurance protection
1. Protect Assets= Automobile & Homeowner’s
2. Protect Income= Disability & Life
3. Limit potential medical expenses= Health
What should you invest?
Any funds beyond what you need to maintain liquidity should be
invested
What do potential investments include?
Stocks, bonds, mutual funds, and real estate
Risk
Uncertainty surrounding the potential return on an investment
Retirement Planning
Determining how much money should be set aside each year for
retirement and how those funds should be invested
Estate Planning
Determining how your wealth will be distributed before or upon
your death
Personal Finance
The process of planning your spending, financing, and investing
so as to optimize your financial situation.
Personal Financial Plan
A plan that specifies your financial goals and describes the
spending, financing, and investing plans that are intended to achieve those
goals.
What you give up as a result of a decision
What does an effective financial plan enhance?
Net worth and builds wealth
What does financing focus on?
Obtaining cash for large purchases or repaying loans
How can you protect assets and income?
By using cash for insurance and retirement
What does investing use to build wealth?
Cash
Steps to developing your financial plan
1. Establish your financial goals
2. Consider your current financial position
3. Identify and evaluate alternative plans that could achieve your goals
4. Select & implement the best plan for achieving your goals
5. Evaluate your financial plan
6. Revise your financial plan
Budget Planning
The process of forecasting future expenses and savings.
Assets
What you own
What you owe
Net Worth
The value of what you own minus the value of what you owe