chapter 1

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


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



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


AN INDIVIDUAL’S FINANCIAL LIFE CYCLE


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


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


Conventional Financial Planning Needs

Secondary School Ages 13 – 17 Preparing for career Evaluating future financial needs

and resources Exploring financial systems –

banks, etc.


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



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



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



Midlife Ages 45 – 54 Assisting with higher education for

children Investing Updating retirement plans Developing estate plans



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



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


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!

chapter 1

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