Main processes of Personal finance plannings are:
- (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) reevaluating and revising the plan.
- Step 1: Determine Your Current Financial
Situation
- In this first step of the financial planning process, you will
determine your current financial situation with regard to 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.
- Step 2: Develop Financial Goals
- You should periodically analyze your financial values and
goals. This involves identifying how you feel about money and why
you feel that way. 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 for making good decisions.
Although many factors will influence the available alternatives,
possible courses of action usually fall into these categories:
- Continue the same course of action.
- Expand the current situation.
- Change the current situation.
- Take a new course of action.
- Not all of these categories will apply to every decision
situation; however, they do represent possible courses of
action.
- Creativity in decision making is vital to effective choices.
Considering all of the possible alternatives will help you make
more effective and satisfying decisions.
- Step 4: Evaluate Alternatives
- You need to evaluate possible courses of action, taking into
consideration your life situation, personal values, and current
economic conditions.
- Consequences of Choices. Every decision closes off
alternatives. For example, a decision to invest in stock may mean
you cannot take a vacation. A decision to go to school full time
may mean you cannot work full time. Opportunity
cost is what you give up by making a choice. This cost,
commonly referred to as the trade-off of a decision, cannot always
be measured in dollars.
- Decision making will be an ongoing part of your personal and
financial situation. Thus, you will need to consider the lost
opportunities that will result from your decisions.
- Uncertainty is a part of every decision. Selecting a college
major and choosing a career field involve risk. What if you don’t
like working in this field or cannot obtain employment in it?
- Other decisions involve a very low degree of risk, such as
putting money in a savings account or purchasing items that cost
only a few dollars. Your chances of losing something of great value
are low in these situations.
- In many financial decisions, identifying and evaluating risk is
difficult. The best way to consider risk is to gather information
based on your experience and the experiences of others and to use
financial planning information sources.
- Financial Planning Information Sources
- Relevant information is required at each stage of the
decision-making process. Changing personal, social, and economic
conditions will require that you continually supplement and update
your knowledge.
- Step 5: Create and Implement a Financial Action
Plan
- In this step of the financial planning process, you develop an
action plan. This requires choosing ways to achieve your goals. As
you achieve your immediate or short-term goals, the goals next in
priority will come into focus.
- To implement your financial action plan, you may need
assistance from others. For example, you may use the services of an
insurance agent to purchase property insurance or the services of
an investment broker to purchase stocks, bonds, or mutual
funds.
- Step 6: Reevaluate and Revise Your Plan
- Financial planning is a dynamic process that does not end when
you take a particular action. You need to regularly assess your
financial decisions. Changing personal, social, and economic
factors may require more frequent assessments.
- When life events affect your financial needs, this financial
planning process will provide a vehicle for adapting to those
changes. Regularly reviewing this decision-making process will help
you make priority adjustments that will bring your financial goals
and activities in line with your current life situation.
As Mr. Jackson has a significant age to invest in some moderate
type of risk assets so he should go for 50-50 approach. Means he
should invest 50% of his savings to equity and 50% to debt
securities. Also he can invest in money market securities depending
upon his needs. As he is 35 years old he can bear the loss if it
happens so till the age of 50 he can take a significant risk. After
that he should avoid risk and invest in some risk free and debt
securities.
thanks
like the answer and give feedback please