Unit OneUnit OneFinancial Planning:Financial Planning:

Your RoadmapYour Roadmap

Questions to be answered:Questions to be answered:

What are the five steps in the What are the five steps in the personal financial planning personal financial planning process?process?

How do you set “SMART” goals?How do you set “SMART” goals? How do your choices affect your How do your choices affect your

money?money? How can money help you live a How can money help you live a

satisfying life?satisfying life?

What is Financial What is Financial Planning?Planning?

Personal Personal Financial PlanningFinancial Planning is the is the process of defining goals, process of defining goals, developing a plan to achieve them, developing a plan to achieve them, and putting the plan into action. It and putting the plan into action. It is the is the blueprint (the plan) blueprint (the plan) for for handling all aspects of your money, handling all aspects of your money, including spending, credit saving, including spending, credit saving, and investing. and investing.

Note that financial planning Note that financial planning is an ongoing thinking is an ongoing thinking process. The plan itself might process. The plan itself might be in writing, but it can and be in writing, but it can and should change over time as should change over time as your circumstances in life your circumstances in life change. What are the change. What are the elements of a good financial elements of a good financial plan? plan?

Five Elements of a Good Plan:Five Elements of a Good Plan:

1.1. Set GoalsSet Goals

2.2. Analyze InformationAnalyze Information

3.3. Create a PlanCreate a Plan

4.4. Implement the PlanImplement the Plan

5.5. Monitor and Modify the PlanMonitor and Modify the Plan

Set GoalsSet Goals Most of us do not have enough money Most of us do not have enough money

to do everything we want. We have to to do everything we want. We have to make choices and tradeoffs because make choices and tradeoffs because of limited amounts of time and of limited amounts of time and money. money.

A good financial plan distinguishes A good financial plan distinguishes between between needs needs and and wants. wants.

Needs Needs are essentials, the basics of are essentials, the basics of life.life.

Wants Wants simply increase the quality of simply increase the quality of living. living.

People define People define needs needs and and wants wants differently, depending on their differently, depending on their own own values. values. Your Your values values are are simply the beliefs and practices simply the beliefs and practices in your life that are very in your life that are very important to you. Lots of things important to you. Lots of things may influence your may influence your values, values, such such as your family, friends, teachers, as your family, friends, teachers, church or your work. church or your work.

Examples of Values:Examples of Values:

Earning good gradesEarning good grades Being responsible with moneyBeing responsible with money Being on time for workBeing on time for work Telling the truthTelling the truth Spending time with people you Spending time with people you

love. love.

#1 - Setting Goals#1 - Setting Goals

A A goal goal is a is a destinationdestination, something , something you you wantwant or or need, need, which you acquire which you acquire by taking certain steps. It gives by taking certain steps. It gives direction to your plan of action. One direction to your plan of action. One of the most valuable things you can of the most valuable things you can learn to do is learn to do is identifyidentify your your goals goals clearly.clearly.

To be really effective, To be really effective, goals goals should should always be in writing and should be always be in writing and should be meaningful to you. meaningful to you.

““SMART”SMART”

It’s helpful to define your It’s helpful to define your goalsgoals in a in a “smart” “smart” way:way:

Specific – Specific – “I want to graduate “I want to graduate from Dickinson State from Dickinson State University”. Not “I want to University”. Not “I want to graduate from college.”graduate from college.”

Measurable – Measurable – I need $2500 a I need $2500 a semester for tuition. Not “ I need semester for tuition. Not “ I need some money for college.some money for college.

Attainable – Attainable – I’ll save $450 a I’ll save $450 a month to pay for tuition. Not I’ll month to pay for tuition. Not I’ll save money for college cost.save money for college cost.

Realistic – Realistic – I will work at the I will work at the Cenex all summer to make Cenex all summer to make money for college tuition. Not money for college tuition. Not I’ll get a job this summer.I’ll get a job this summer.

Time-bound – Time-bound – I plan to graduate I plan to graduate from Dickinson State University from Dickinson State University within four years of my high within four years of my high school graduation. Not I’ll plan school graduation. Not I’ll plan to graduate from college.to graduate from college.

Think of your Think of your goals goals as as what you want to what you want to be, do be, do or or have have – in other words – in other words where you want to GO. where you want to GO.

Timelines for Goals Timelines for Goals

Short-term: up to three monthsShort-term: up to three months Intermediate-term: three months to Intermediate-term: three months to

one year.one year. Long-term: more than a year. Long-term: more than a year.

Long-term Long-term goals goals require patience to require patience to achieve and a willingness to give up achieve and a willingness to give up something you want now in return for something you want now in return for something better later – something better later – delayed delayed gratification. gratification.

#2 - Analyze Information#2 - Analyze Information

Ask yourself these question:Ask yourself these question:

1.1. How much do you spend each wk?How much do you spend each wk?

2.2. What do you spend your money What do you spend your money on?on?

3.3. Do you owe anyone money for all Do you owe anyone money for all the stuff you have?the stuff you have?

To help analyze these questions, To help analyze these questions, you can track you cash flow with you can track you cash flow with a a Personal Spending Record.Personal Spending Record.

Cash flow – Cash flow – is simply a measure is simply a measure of the money you receive and of the money you receive and the money you spend. the money you spend.

#3 – Create a Plan#3 – Create a Plan

Decision making Decision making is the process of is the process of considering and analyzing considering and analyzing information in order to make a information in order to make a decision. It is time to make some decision. It is time to make some financial decisions and formulate a financial decisions and formulate a plan. You have to make decisions plan. You have to make decisions based on the based on the values values you have and you have and accept the tradeoffs. Choosing one accept the tradeoffs. Choosing one option may mean giving up altogether option may mean giving up altogether on another goal. In economic terms, on another goal. In economic terms, this is call this is call opportunity cost. opportunity cost.

#4 – Implement the Plan#4 – Implement the Plan

With your plan in place, all you With your plan in place, all you have to do is make it happen. It have to do is make it happen. It takes discipline. takes discipline.

In some form of fashion, you will In some form of fashion, you will be using money the rest of your be using money the rest of your life, so you may as well sharpen life, so you may as well sharpen your money-handling skills now!your money-handling skills now!

3Rs of Money: Reality, 3Rs of Money: Reality, Responsibility & RestraintResponsibility & Restraint

Reality: Reality: Recognizing that unless you Recognizing that unless you

strike it rich somehow, you’ll have strike it rich somehow, you’ll have limited amounts of time and money to limited amounts of time and money to use.use.

Responsibility: Responsibility: If you handle your If you handle your money wisely, you can do a lot of money wisely, you can do a lot of good for yourself and others. good for yourself and others.

Restraint: Restraint: Is when you have self-Is when you have self-control to save your money for future control to save your money for future goals instead of spending it now. goals instead of spending it now.

#5 – Monitor and Modify the Plan#5 – Monitor and Modify the Plan After you create a plan, be aware After you create a plan, be aware

you may need to change it over you may need to change it over time. You will run into unexpected time. You will run into unexpected obstaclesobstacles

Ask yourself these questions:Ask yourself these questions:1.1. Are your existing goals still worth Are your existing goals still worth

doing?doing?

2.2. Is there a new goal to add to your list?Is there a new goal to add to your list?

3.3. Is there and existing goal you want to Is there and existing goal you want to drop or change?drop or change?

Now you can see how all these Now you can see how all these elements combine to affect the elements combine to affect the financial planning process: your financial planning process: your values values influence your influence your needs needs and and goals; goals; the decisions you make the decisions you make affect your affect your goals; goals; spending spending money on your money on your wants wants may limit may limit your your needs; needs; and all of this is and all of this is your personal financial your personal financial responsibility. responsibility.

Financial planning in a nutshell:Financial planning in a nutshell:

Making money work for you to let you Making money work for you to let you lead the kind of life you want. Be lead the kind of life you want. Be careful about getting mixes up and careful about getting mixes up and letting money control you. Money is letting money control you. Money is just a means to an end.just a means to an end.

With a personal financial plan, as you With a personal financial plan, as you journey through life, rather than journey through life, rather than wandering aimlessly, you’ll know wandering aimlessly, you’ll know where you want to go today and where you want to go today and tomorrow, and you’ll have a better tomorrow, and you’ll have a better idea how to get there. idea how to get there.