chapter 1
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CHAPTER 1
OVERVIEW OF FINANCIAL PLANNING
EDITED BY: SITI NURAZANI MUSTAFFA/JUN2014
1.1 Describe financial planning 1.1.1 Identify the steps in financial planning and its benefit 1.1.2 Discuss life stages with financial goals that affect financial planning1.2 Explain the value of money 1.2.1 Explain the importance of the time value of money 1.2.2 Analyze the power of compound interest
EDITED BY: SITI NURAZANI MUSTAFFA/JUN2014
OVERVIEW OF FINANCIAL ACCOUNTING
STEPS IN FINANCIAL PLANNING
Assess where you are financially right now
Define your financial goals Develop a plan of action Implement your plan Review your progress, re-
evaluate & revise your plan
BENEFITS OF FINANCIAL PLANNING
- Better Control Of Your Financial Affairs- Better Relationship With People Around You - Freedom From Financial Worries- More Effective In Obtaining, Using & Protecting Your Financial Resources
EDITED BY: SITI NURAZANI MUSTAFFA/JUN2014
EDITED BY: SITI NURAZANI MUSTAFFA/JUN2014
AN INDIVIDUAL’S FINANCIAL LIFE CYCLE
0 20 30 40 50 60 70 80
RM
ApproachingRetirement
Years Retirement YearsSingle * Marriage * Start and Raise Family
Years of Age
Stage 1: Basic Wealth Protection
Stage 3: Wealth Distribution
Stage 2: Wealth Accumulation
EDITED BY: SITI NURAZANI MUSTAFFA/JUN2014
AN INDIVIDUAL’S FINANCIAL LIFE CYCLE
EDITED BY: SITI NURAZANI MUSTAFFA/JUN2014
PERSONAL FINANCIAL MANAGEMENT PYRAMID
Risk and Tax Management:goal setting, insurance, protection against
economic loss, income tax reduction
Building Long Term Wealth:
goal setting, retirement planning, investments
Cash Management: goal setting, emergency, cash reserve, record keeping, spending
plans, net worth, and income-expense statements
EstatePlanning
Credit and Debt Management: goal setting, credit use, avoiding credit abuse, debt reduction
Building Financial Security: goal setting, savings plan,
home ownership, children’s education
Wealth Distribution‘giving it to your chosen ones’
Wealth Accumulation
Basic Wealth
Protection
EDITED BY: SITI NURAZANI MUSTAFFA/JUN2014
Life Cycle Events Activity People in certain age groups tend to have
similar life cycle needs What activities and events require financial
planning during each stage? Secondary School Ages 13-17 Young Adult Ages 18-24 Adult With or Without Children Ages 25-
34 Working Parent or Adult Ages 35-44 Midlife Ages 45-54 Pre-Retirement Ages 55-64 Retired Ages 65 and older
EDITED BY: SITI NURAZANI MUSTAFFA/JUN2014
Conventional Financial Planning Needs
Secondary School Ages 13 – 17 Preparing for career Evaluating future financial needs
and resources Exploring financial systems –
banks, etc.
EDITED BY: SITI NURAZANI MUSTAFFA/JUN2014
Young Adult Ages 18 – 24 Training for a career Determining insurance needs Establishing credit Establishing savings Creating a spending plan Developing a personal financial
identity Developing a personal financial
system
Conventional Financial Planning Needs
EDITED BY: SITI NURAZANI MUSTAFFA/JUN2014
Adult With or Without Children Ages 25 – 34 Child-bearing Child-raising Starting an education fund for children Expanding career goals Managing increased need for credit Discussing and managing additional
insurance needs Creating a will Maximizing financial management by
all members of household
Conventional Financial Planning Needs
EDITED BY: SITI NURAZANI MUSTAFFA/JUN2014
Working Adult or Parent Ages 35 – 44 Upgrading career training Building on children’s education fund Developing protection needs for head-of-
household Need for greater income due to expanding
needs Establishing retirement goals
Conventional Financial Planning Needs
EDITED BY: SITI NURAZANI MUSTAFFA/JUN2014
Midlife Ages 45 – 54 Assisting with higher education for
children Investing Updating retirement plans Developing estate plans
Conventional Financial Planning Needs
EDITED BY: SITI NURAZANI MUSTAFFA/JUN2014
Pre-Retirement Ages 55 – 64 Consolidating assets Planning future security Re-evaluating property transfer Investigating retirement part-time income
or volunteer work Evaluating expenses for retirement and
current housing Meeting responsibilities of ageing parents
Conventional Financial Planning Needs
EDITED BY: SITI NURAZANI MUSTAFFA/JUN2014
Retired Ages 65 and older Re-evaluating and adjusting living conditions
and spending as related to health and income
Adjusting insurance programs for increasing risks
Acquiring assistance in management of personal and financial affairs
Finalizing estate plan Finalizing will or letter of last instructions
Conventional Financial Planning Needs
TIME VALUE OF MONEY- Money At Present Time Is Worth More Than Same Amount Of Money In The Future
POWER OF COMPOUND INTEREST- The Earlier You Start Saving, The Greater Interest Accumulated
- Compound Interest Is A Double-edge SwordEDITED BY: SITI NURAZANI MUSTAFFA/JUN2014
Money Management – Case Study
AhmadStarted saving early incareer (18 yrs old)Contributed RM3000/yrContributed for 5 years
SitiStarted saving later (22 yrs old)Contributed RM3000/yrContributed for 8years
ZainalStarted saving later (30 yrs old)Contributed RM3000/yrContributed for 26years
Who had more money at age 55 ?
This is an example of what Albert Einsteincalled the most powerful force in the
Universe… compound interest!
EDITED BY: SITI NURAZANI MUSTAFFA/JUN2014
EDITED BY: SITI NURAZANI MUSTAFFA/JUN2014
EDITED BY: SITI NURAZANI MUSTAFFA/JUN2014
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