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Personal Finance (Personal financial planning

the process of planning your spending, financing, and investing activities, while taking into account uncontrollable events such as death or disability, in order to optimize your financial situation over time

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A personal Financial plan

A plan that specifies your financial goals and describes the spending, financing, and investing activities that are intended to achieve those goals and the risk management strategies that are required to protect against uncontrollable events such as death or disability.

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per capita debt

The amount of debt each individual in Canada would have if total debt (consumer debt plus mortgages) was spread equally across the population

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opportunity cost

What you give up as a result of a decision

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Financial Planning Standards Council (FPSC)

A not-for-profit organization that was created to benefit the public through the development, enforcement, and promotion of the highest competency and ethical standards in financial planning.

It provides a series of questions that you can ask a financial adviser, also known as a financial planner. The answers that you receive to these questions will help you evaluate whether or not you are comfortable with the perspective and business approach of a potential financial adviser.

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Fiancial Advisors are in demand because

- people lack understanding of personal fiance
- are not interested in making their own financial decisions
- simply do not have the time necessary to research and educate themselves on financial issues in order to make informed decisions.

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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 and estate

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components of a financial plan:1. Budgeting and tax planning

The process of forecasting future income, expenses, and savings goals.
step 1: evaluate current financial position by assessing you income, your expenses, your assets, and you liabilities.
-- Budgeting enables you to improve net worth by setting aside a part of you income to invest in assets or reduce liabilities.

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components of a financial plan: 2. Managing your liquidity

Access to ready cash, including savings and credit, to cover short-term or unexpected expenses.
- you can enhance liquidity through money management and credit management

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components of a financial plan: 3. Financing your large purchases

use of loans
managing loans includes :
- how much you can afford to borrow
- deciding on the maturity (length of time)
- selecting a loan that charges an appropriate interest rate

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components of a financial plan: 4. Protecting your assets and income (insurance)

- use of risk management to determine and combat possible risk (reduce, accept, share, insure) and insurance planning on assets

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components of a financial plan: 5. Investing your Investing

- any savings beyond your liquidity should be invested
, this will earn you return (stocks, bonds, mutual funds, real estate.
There is risk in investment (potential loss of return and or loss of capital ), therefore you must determine your risk tolerance.

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components of a financial plan:6. Planning your retirement and estate

various kinds of retirement planning
Retirement planning -Determining how much money you should set aside each year for retirement and how you should invest those funds.

Estate Planning - Determining how much money you should set aside each year for retirement and how you should invest those funds. Ensures that your wealth is protected from taxes and is distributed throughout the entirety of your life

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Assets

What you own

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liabilities

What you owe; your debt

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net worth

the value of what you own minus what you owe

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What is budget influenced by ?

- income
- life stage

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Money Management

Decisions regarding how much money to retain in liquid form and how to allocate the funds among short-term investment instruments.

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emergency fund

A portion of savings that you have allocated to short-term needs such as unexpected expenses in order to maintain adequate liquidity.

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Credit management

-credit is often used as a form of liquidity, however we must be careful with credit because we will have to pay it back

Decisions regarding how much credit to obtain to support your spending and which sources of credit to use.

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Risk management

Decisions about whether and how to protect against risk

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Risk

Exposure to events (or perils) that can cause a financial loss.

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Insurance Planning

Determining the types and amount of insurance needed to protect your assets

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investment risk

Uncertainty surrounding not only the potential return on an investment but also its future potential value.

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risk tolerance

A person’s ability to accept risk, usually defined as a potential loss of return and/or loss of capital.

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Developing the Financial plan

Step 1: Establish you financial goals
step 2: Consider you current financial position
Step 3: Identify and Evaluate Alternative Plans that could help you achieve you goals.
Step 4: Select and Implement the Best Plan for Achieving your Goals
Step 5: Evaluate your Financial Plan
Step 6: Revise your Financial Plan

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Step 1: Establish you financial goals

- specify you goals (amount of money)
- measure you goals (what will you need to accomplish them )
- set realistic goals
-timing of goals (short , medium, long term )

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step 2: Consider you current financial position

decisions about how much to spend, how much to place in savings account, how often to use your credit card, and how much you invest will depend on your financial position

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Step 3: Identify and Evaluate Alternative Plans that could help you achieve you goals.

identify other financial options that could achieve your financial goals , given your financial position.

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Step 4: Select and Implement the Best Plan for Achieving your Goals

-- choose the alternative that will most effectively achieve your goals. The type of plan you select to achieve you financial goals is influenced by your willingness to take risk and by your self-discipline.
- use the internet