,Table of Contents
Part I: FOUNDATIONS OF FINANCIAL PLANNING.
1. Understanding the Financial Planning Process.
2. Developing Your Financial Statements and Plans.
3. Preparing Your Taxes.
Part II: MANAGING BASIC ASSETS.
4. Managing Your Cash and Savings.
5. Making Automobile and Housing Decisions.
Part III: MANAGING CREDIT.
6. Using Credit.
7. Using Consumer Loans.
Part IV: MANAGING INSURANCE NEEDS.
8. Insuring Your Life.
9. Insuring Your Health.
10. Protecting Your Property.
Part V: MANAGING INVESTMENTS.
11. Investment Planning.
12. Investing in Stocks and Bonds.
13. Investing in Mutual Funds and Real Estate.
Part VI: RETIREMENT AND ESTATE PLANNING.
14. Planning for Retirement.
15. Preserving Your Estate.
, Chapter 1
Understanding the Financial Planning Process
How Will This Affect Me?
The heart of financial planning is making sure your values line up with how you spend and save.
That means knowing where you are financially and planning on how to get where you want to be
in the future no matter what life throws at you. For example, how should your plan handle the
projection that Social Security costs may exceed revenues by 2035? And what if the government
decides to raise tax rates to help cover the federal deficit? An informed financial plan should
reflect such uncertainties and more.
This chapter overviews the financial planning process and explains its context. Topics include how
financial plans change to accommodate your current stage in life and the role that financial
planners can play in helping you achieve your objectives. After reading this chapter you will
have a good perspective on how to organize your overall personal financial plan.
LEARNING GOALS
LG1 Identify the benefits of using personal financial planning techniques to manage your
finances.
Key concept in this section is the planning model as displayed in Exhibit 1.1. Your standard of
living is greatly impacted by your spending habits and your commitment to saving. Your spending
is measured by your propensity to consume. Wealth is the total value of all propertyyou own
less the amount that you owe to others.
ACTIVITY: Ask the students to assume that they have just inherited $100,000. What will youdo
with the money? Write down three ways you will spend or use the money.
, Ask the students to share one item with the class and record what they say so that the entire class
can reflect on the answers. Hopefully, at least a few will mention investing even if only $10,000
of the amount. Use their answers to discuss taking care of current needs versus future needs.
Focus on their propensity to consume and its impact on accumulating wealth. Point out the
Financial Planning Tip, ―Be SMART in Planning Your Financial Goals.‖
Use Exhibit 1.2 to show how the average person earns and spends their money and Exhibit 1.6 to
help the student identify where they are now.
LG2 Describe the personal financial planning process and define your goals.
Dwight Eisenhower, army general and president, is quoted as saying ―Plans are useless; Planning
is priceless‖. The process of planning allows you to focus on the issues that are most important
and to be ready when things change.
Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most important is defining
your financial goals. Exhibit 1.6 lists goals by age to demonstrate how goals change over time.
Use the examples in Exhibit 1.5 to ask students if the assumptions are realistic. Yes,the answer is
in the exhibit, but many will not have read chapter at this point. For your use, theassumptions
are:
Assumption 1: Saving a few thousand dollars a year should provide enough to fund my child‘s
college Education.
Assumption 2: An emergency fund lasting 3 months should be adequate.
Assumption 3: I will be able to retire at 65 and should have plenty to live on in retirement.
Assumption 4: I‘m relying on the rule of thumb that I will need only 70 percent of my pre-
retirement income to manage nicely in retirement.
There are several worksheets in the book. Worksheet 1.1 gives the student a format to write
down their Personal Financial Goals. There is power in writing down goals [and most any other
plan]. Recording the goal and then reviewing three months later will help you to keep focus on
the goal.
LG3 Explain the life cycle of financial plans, their role in achieving your financial goals,
how to deal with special planning concerns, and the use of professional financial planners.
Exhibit 1.7 can help focus the attention on how goals differ between the various stages of life.
Section 1-3b lists various decisions that you will have to make over your life. The section 1-3c
addresses Special Planning Concerns. Worksheet 1.2 focuses on the financial benefit to the
family of the second income. If the second income is from a minimum wage job, it may not be a
good financial decision. Of course having a job, even a minimum wage job, may give the person
psychic income that will override the financial impact.
While perhaps off topic, I recall a high school science teacher who was a smoker. He walked
through the amount of money he spent on purchasing tobacco products. That computation had a
Part I: FOUNDATIONS OF FINANCIAL PLANNING.
1. Understanding the Financial Planning Process.
2. Developing Your Financial Statements and Plans.
3. Preparing Your Taxes.
Part II: MANAGING BASIC ASSETS.
4. Managing Your Cash and Savings.
5. Making Automobile and Housing Decisions.
Part III: MANAGING CREDIT.
6. Using Credit.
7. Using Consumer Loans.
Part IV: MANAGING INSURANCE NEEDS.
8. Insuring Your Life.
9. Insuring Your Health.
10. Protecting Your Property.
Part V: MANAGING INVESTMENTS.
11. Investment Planning.
12. Investing in Stocks and Bonds.
13. Investing in Mutual Funds and Real Estate.
Part VI: RETIREMENT AND ESTATE PLANNING.
14. Planning for Retirement.
15. Preserving Your Estate.
, Chapter 1
Understanding the Financial Planning Process
How Will This Affect Me?
The heart of financial planning is making sure your values line up with how you spend and save.
That means knowing where you are financially and planning on how to get where you want to be
in the future no matter what life throws at you. For example, how should your plan handle the
projection that Social Security costs may exceed revenues by 2035? And what if the government
decides to raise tax rates to help cover the federal deficit? An informed financial plan should
reflect such uncertainties and more.
This chapter overviews the financial planning process and explains its context. Topics include how
financial plans change to accommodate your current stage in life and the role that financial
planners can play in helping you achieve your objectives. After reading this chapter you will
have a good perspective on how to organize your overall personal financial plan.
LEARNING GOALS
LG1 Identify the benefits of using personal financial planning techniques to manage your
finances.
Key concept in this section is the planning model as displayed in Exhibit 1.1. Your standard of
living is greatly impacted by your spending habits and your commitment to saving. Your spending
is measured by your propensity to consume. Wealth is the total value of all propertyyou own
less the amount that you owe to others.
ACTIVITY: Ask the students to assume that they have just inherited $100,000. What will youdo
with the money? Write down three ways you will spend or use the money.
, Ask the students to share one item with the class and record what they say so that the entire class
can reflect on the answers. Hopefully, at least a few will mention investing even if only $10,000
of the amount. Use their answers to discuss taking care of current needs versus future needs.
Focus on their propensity to consume and its impact on accumulating wealth. Point out the
Financial Planning Tip, ―Be SMART in Planning Your Financial Goals.‖
Use Exhibit 1.2 to show how the average person earns and spends their money and Exhibit 1.6 to
help the student identify where they are now.
LG2 Describe the personal financial planning process and define your goals.
Dwight Eisenhower, army general and president, is quoted as saying ―Plans are useless; Planning
is priceless‖. The process of planning allows you to focus on the issues that are most important
and to be ready when things change.
Exhibit 1.3 lists the Six Step Financial Planning Process. The first and most important is defining
your financial goals. Exhibit 1.6 lists goals by age to demonstrate how goals change over time.
Use the examples in Exhibit 1.5 to ask students if the assumptions are realistic. Yes,the answer is
in the exhibit, but many will not have read chapter at this point. For your use, theassumptions
are:
Assumption 1: Saving a few thousand dollars a year should provide enough to fund my child‘s
college Education.
Assumption 2: An emergency fund lasting 3 months should be adequate.
Assumption 3: I will be able to retire at 65 and should have plenty to live on in retirement.
Assumption 4: I‘m relying on the rule of thumb that I will need only 70 percent of my pre-
retirement income to manage nicely in retirement.
There are several worksheets in the book. Worksheet 1.1 gives the student a format to write
down their Personal Financial Goals. There is power in writing down goals [and most any other
plan]. Recording the goal and then reviewing three months later will help you to keep focus on
the goal.
LG3 Explain the life cycle of financial plans, their role in achieving your financial goals,
how to deal with special planning concerns, and the use of professional financial planners.
Exhibit 1.7 can help focus the attention on how goals differ between the various stages of life.
Section 1-3b lists various decisions that you will have to make over your life. The section 1-3c
addresses Special Planning Concerns. Worksheet 1.2 focuses on the financial benefit to the
family of the second income. If the second income is from a minimum wage job, it may not be a
good financial decision. Of course having a job, even a minimum wage job, may give the person
psychic income that will override the financial impact.
While perhaps off topic, I recall a high school science teacher who was a smoker. He walked
through the amount of money he spent on purchasing tobacco products. That computation had a
