Planning Your Financial Future: It Begins Here

●Chapter 1

Financial Planning●Financial plan- is a set of goals for acquiring, saving, and spending money

●Do you want to just get by living pay check to paychek or do you want to be free from financial worry?

●Having a financial plan helps you be in control of your financial situation and achieve your goals.

●Why is financial planning important?

●Financial Goals- measurable objectives related to acquiring or spending money

●You may have to give up things you want now in order to be financially secure later

●Set short term and long term goals, they will help you achieve many things in the future

SMART Goals

●S- Are my short and long term goals Specific●M-Are my goals measurable●A-Are my goals attainable●R- Are my goals relevant to meeting my financial needs●T- Are my goals timely

Needs and Wants

●Needs- those things a person must have to survive, such as food, water, shelter, and clothing●Wants- things a person desires but are not necessary●Values-are your beliefs about ideas and principles that are important to you●Wealth- is a plentiful supply of money or valuable goods●Net Worth- is the difference between what you own and what you owe

●Assets-things you own●Liabilities- (debts you owe) from the assets●Assets-Liabilities=Net Worth●Assets-$1785●Liabilites-$968●Net Worth=$817

●Investing- is putting money in a savings account, buying savings bonds, or buying part ownership in a company

●Financial independence- having enough money for your basic needs and modest wants without having to work

●Growth-increase in value, of their investments over a period of years

●Invest $2000 for 10 years at 19, grows at 10% rate per year. You stop at 65 years old, you’ll have $1,083,959

●Example:●Annual investment for 10 years = $2,000●Investment Period= 48years●Annual Earnings rate = 10%●Total Investment = $20,000●Final Amount = $1,083,959

●The average rate of return- the percentage that your savings or other investments earn over a period of time

●Average return amount= total amount earned / # of years

●Average rate of return = average return amount / # of years

●No guaranteed rate of return on most types of investments, return on stocks & interest rates go up and down

●Interest- a fee paid on borrowed money or money earned on deposit with a bank or other financial institution

●The longer you keep money on deposit the more you will earn

●Compound interest- on the principal(amount invested) plus the interest you have already earned

●Deposit $1000 interest rate of 5% you will have $1050, next year you will earn $1050

●Principal x Rate x Time = Interest

●Do Example 1-3 in the book

●Do Example 1-4 in the book

●Rule 72- is an equation that lets you estimate how long it will take to double your investment with a fixed annual interest rate

●72 / Interest Rate= # of years to double an investment

●Rate of return of 6% How many years will it take you to double your investment?

●72 / 6(ror) = 12

●So it will take 12 years