Question

Review the material in Chapter 1 on Personal Financial Planning. Define the financial planning process List the elements of a good financial plan. Identify and discuss the three most important personal factors and the three most important economic factors that affect your financial planning decisions.

Answer 1

Financial planning is the process of evaluating and managing the utilization of financial resources optimally for the achievements of organization' s goals and objectives.

There are 6 steps of financial planning process:

- Establish goals and define client planner relationship.

- Gather Relevant data

- Analyze and evaluate data

- Develop the financial plan with recommendation and alternatives.

- Implement the plan

-Monitor the progress of the plan

List of elements of good financial plan

Goals and objectives-: It should be listed by priority and should be as specific as possible.

Income tax planning- Tax returns should be examined to determine if tax saving possibilities can be maximized.

Balance Sheet- A balance sheet should be created, showing not worth by listing all assets and liabilities and this should be periodically updated.

Issues and Problems- Aware to issues and problems so that we could be familiarise with strength and weakness of situation.

Risk management and Insurance- There should be proper planning for unseen events for this risk management and insurance arrangements should be done.

Retirement, education and special needs- Consideration must be given to retirement, education or any other special needs. Financial projections should be prepared for these needs.

The 3 most important personal factors which affect the financial planning i.e. marital status, households size and employment. These three are important when we are going to plan for future.

If you are married you lost likely will have two income vs one income.

Household size matters because most people you have living in the house. It can change how you plan your finances for the month esp; when you have a child; need to buy child' s stuffs and his exp further expenses.

Employment matters because if you do not have a decent job it is going to affect how you pay for everyday things.

The 3 most important economic factors are consumer prices, inflation and interest rates. Consumer prices can change how much dollar is worth, Inflation is the rising prices for goods and services but it can also lower the purchasing power of a dollar; interest rate effect because in the economy we live in now days everyone borrows money for just about everything and the lower interest rates encourage consumers to spend more money. Higher rates encourage consumers to start saving money and borrowing less.