Financial Planning Your Roadmap
Mar 27, 2015
Financial Planning
Your Roadmap
What does this mean?
Cheshire Cat, Alice In Wonderland
Values
• The beliefs and The beliefs and practices in your practices in your life that are life that are important to you.important to you.
• Reflect your Reflect your upbringingupbringing
• Change little Change little without constant without constant efforteffort
• FamilyFamily• FriendsFriends• WorkWork• HonestyHonesty• Self-RelianceSelf-Reliance• IndependenceIndependence• ReligionReligion
Values strongly influence our spending habits. We don’t usually spend our money on things we do not feel are important. Typically, the more important something is, the more we are willing to spend on it.
Financial Values
NEEDS vs WANTS
• NEEDS– Essentials…the basics
of life– Food– Clothing– Shelter
NEEDS vs WANTS
• WANTS– Simply increase the
quality of living
What is a goal?
• A written statement of something a person wants or needs to accomplish.– Examples
• Graduate from high school• Earn a college degree• Buy a car• Get a job• Lose 15 pounds
Why Set Goals?
• Would you set out on a cross-country adventure without a road map?
• Setting goals are like a road map– Provide direction– Focus on the important things– Keep end results in mind
Time-bound Goals
• Short Term Goals– Present to 6 months
• Improve grades at school• Make the basketball team
• Long Term Goals– 6 month and longer
• Attending college• Buy a new car
• THIS WILL VARY AMONG RESOURCES
Smart Goals
• SSpecific-pecific- State exactly what is to be done with the money.
• MMeasurableeasurable-Write the exact dollar amount
• AAttainablettainable- How can it be reached
• RRealisticealistic- Do not set goals for something unrealistic
• TTime-boundime-bound- When will the goal be met
What’s Missing?
• Financial Goal #1Financial Goal #1: I plan to save $5,000 for college living expenses in four years.
Measurable
Attainable
Specific
Financial Goal #2Financial Goal #2: I plan to save for a new computer by saving $150 each month for one year.
Financial Goal #3Financial Goal #3: I plan to save $2,500 by saving $105 each month for 2 years
What’s Missing? (continued)
• Financial Goal #4Financial Goal #4: I plan to save $1,500 to buy a used car by saving $75 from each paycheck.
Time Bound
Realistic
Financial Goal #5Financial Goal #5: I plan to save $2,000 to pay for a new computer by saving my whole paycheck for the next 6 months
Decision Making
• The process of gathering and analyzing information in order to make a decision.
Factors that influence Decisions• Values• Peers• Habits• Consequences
• Family• Age• Feelings (love,
rejection, anger)• Risks
Steps for Decision Making
• Set Goals
• Analyze Information
• Create a Plan
• Implement the Plan
• Monitor and Modify the PlanSource: NEFE
The 3 Rs of Money
• RealityReality –Limited amount of time and money to use
• Responsibility-Responsibility- Handle money wisely
• RestraintRestraint – Save your money for a future goal.
Types of Influences on Financial Behavior• CulturalCultural
– Language, the way someone is raised, geographic location.
• SocialSocial– Peer pressure, fads, marketing, advertising
• EmotionalEmotional– Binge spending, comfort shopping, fear of
making a decision
Peer Pressure
• The influence others have on an individual’s personal decisions.
Forms of Peer Pressure as it Relates to Purchasing Decisions
• Friends• Newspapers• Magazines• Telephone
Directories
• Direct Mail• Commercials• Catalogs• Radio
Advertisements
Emotional Factors Related to Peer Pressure
• Gossip• Acceptance• Disapproval• Insecurities• Boyfriend/Girlfriend• Sarcasm
• Fear• Clubs• Athletics• Cliques• Rich/Poor
Scarcity
“Scarcity is an economic principle stating that because of limited resources, an economic system cannot possibly produce all the goods and services that people want; therefore, choices must be made about how the limited resources will be used.”
-Consumer Economics & Education, Glencoe, 2003
Marketing, Advertising and Sales Strategies/Techniques
People who sell products and services are fishing for
customers. They lure them in with sales, coupons, and other enticements. Unlike
fish, consumers can benefit in this situation – if they
know how to take advantage of special
purchasing opportunities.
Examples of Marketing, Advertising and Sales Strategies
• Clearance Sales• Holiday Sales• Coupons• Rebates• Sweepstakes• Contests• Sales People
• Attractive Décor• Background Music• Items purchased
most often are in back of store (bread/milk)
• Most profitable items are given prominent positions.
Opportunity Cost
• Refers to what a person gives up when a decision is made.
• This cost, often called a trade-off, may involve one or more of your resources:
• Time• Money• Effort
Click here to see what Bank High
School says about
opportunity cost.
Financial Planning
• The process of:
• defining goals
• developing a plan to achieve them
• Putting the plan into action
Benefits of Having aFinancial Plan?• You have more money and financial
security.• You know where to use money to achieve
your goals.• You have less chance of going into debt
you cannot handle.• You can help your partner and support
children if you have a family.
How do I make aFinancial Plan?
1. Determine your current financial situation.
Make a list of items that relate to your finances:
• Savings/Investments• Monthly Income (Job Earnings,
Allowance, Gifts, Interest)• Monthly Expenses• Debts
How do I make aFinancial Plan?
2. Develop your financial goals.Consider your attitude toward money.
Ask yourself the following:• How do I determine if it is
more important to spend money now, or save it for the future?
• How do your personal values affect your financial decisions?
How do I make aFinancial Plan?
3. Identify your options.• Expand the current situation.• Change the current situation.• Start something new.• Continue the same course of
action.
How do I make aFinancial Plan?
4. Evaluate your alternatives.
Consider the risks and consequences of each decision you make.
• Be aware of all sources of financial information.
• Evaluate consequences of choices, both good and bad.
• Understand risks involved with choices.
How do I make aFinancial Plan?
5. Create and use your financial plan of action.
How do I make aFinancial Plan?6. Review and revise your plan.
As we get older and our circumstances, our finances, needs, and wants will change, therefore, our financial plan must be flexible as well.