Title The Financial Planning Process.pdf ✅

READING 01 READING 01 The Financial Planning Process Everywhere people are talking about money. When it comes to handling your finances, are you an explorer, someone who is always searching through uncharted areas? Are you a passenger, just along for the ride on the money decision-making trip of life? Or are you a researcher, seeking answers to the inevitable money questions of life? Most people want to handle their finances so that they get full satisfaction from each available dollar. Typical financial goals include such things as a new car, a larger home, advanced career training, contributions to charity, extended travel, and self-sufficiency during working and retirement years. To achieve these and other goals, people need to identify and set priorities. Financial and personal satisfaction are the result of an organized process that is commonly referred to as personal money management or personal financial planning. Personal financial Planning is the process of managing your money to achieve personal economic satisfaction. This planning process allows you to control your financial situation. Every person, family, or household has a unique financial position, and any financial activity therefore must also be carefully planned to meet specific needs and goals. A comprehensive financial plan can enhance the quality of your life and increase your satisfaction by reducing uncertainty about your future needs and resources. The specific advantages of personal financial planning include:  Increased effectiveness in obtaining, using, and protecting your financial resources throughout your lifetime  Increased control of your financial affairs by avoiding excessive debt, bankruptcy, and dependence on others for economic security  Improved personal relationships resulting from well -planned and effectively communicated financial decisions.  A sense of freedom from financial worries obtained by looking to the future, anticipating expenses, and achieving your personal economic goals We all make hundreds of decisions each day. Most of these decisions are quite simple and have few consequences some are complex and have long-term effects on our personal and financial situations. While everyone makes decisions, few people consider how to make better decisions. The financial planning process is a logical, six-step procedure: (1) determining your current financial situation, (2) developing financial goals, (3) identifying alternative courses of action, (4) evaluating alternatives, (5) creating and implementing a financial action plan, and (6) reviewing and revising the plan.
READING 01 Step 1: Determine your current Financial Situation In this first step, you will determine your current financial situation regarding income, savings, living expenses, and debts. Preparing a list of current asset and debt balances and amounts spent for various items gives you a foundation for financial planning activities. The personal financial statements discussed in Chapter 3 will provide the information needed to match your goals with your current income and potential earning power. Step 2: Develop Your Financial Goals You should periodically analyze your financial values and goals. This activity involves identifying how you feel about money and why you feel that way. Are you’re feeling about money based on factual knowledge or on the influences of others? Are your financial priorities-based in social pressures, household needs, or desires for luxury items? How will economic conditions affect your goals and priorities? The purpose of this analysis is to differentiate your needs from your wants. Specific financial goals are vital to financial planning. Others can suggest financial goals for you: however, you must decide which goals to pursue. Your financial goals can range from spending all of your current income to developing an extensive savings and investment program for your future financial security. Step 3: Identify Alternative Courses of Action Developing alternatives is crucial when making decisions. Although many factors will influence the available alternatives, possible courses of action usually fall into these categories:  Continue the same course of action. For example, you may determine that the amount you have saved each month is still appropriate.  Expand the current situation. You may choose to save a larger amount each month  Change the current situation. You may decide to use a money market account instead of a regular savings account.  Take a new course of action. You may decide to use your monthly savings budget to pay off credit card debts. Not all of these categories will apply to every decision; however, they do represent possible courses of action. For example, if you want to stop working full time to go school, you must generate several alternatives under the category “Take a new course of action.” Creativity in decision making is vital effective choices. Considering all of the possible alternatives will help you make more effective and satisfying decisions. For instance, most people believe the must own a carto get to work or school. However, they should consider other alternatives such as public transportation, carpooling, renting a car, shared ownership of a car, or a company car. Remember, when you decide not to take action, you elect to “to do nothing,” which can be a dangerous alternative.