Personal Finance Effort to manage your personal financial activities and ultimately accumulate wealth

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Financial Planning Process Define financial goalsDevelop financial plans and strategiesImplement plans Develop and implement budgetsEvaluate financial statementsRedefine goals

Personal Financial Planning Life Cycle

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Financial Plans

Financial Actions Asset

decisions Credit decisionsInsurance decisions

Investment decisionsRetirement

decisions Estate decisions

Financial Results

Obtaining Money and Wealth

Earn wages from employment Save spend less than wages Grow investments

from savings Transfer personal wealth to

business Risk personal wealth for business

What Determines Personal Income?1 Education 2 Career and drive 3 Relevance to the market 4 Location, demographics, age 5 Level of risk 6 Owner vs. employee

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Investments are specific financialinstruments we use to generate growth and income 1 Checking and savings acct. cash 2 Certificates of deposit 3 Bonds 4 Stocks 5 Mutual Funds 6 Real Estate

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Financial plans are road maps that show you the way and Personal financial statements let you know where you stand financially

The Interlocking Network of Financial Plans and Statements

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Personal Balance Sheet How much are you worth today? A statement of financial position at a point in time Liabilities + Assets = Net Worth (equity)

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Personal Income and Expense Statement measures of financial performance over a given time period Total income–total expenses=cash surplus (or cash deficit)

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How the Budgeting Process Works Estimate income Estimate expenses Finalize income/expense budgets Deal with deficits

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Use Budgets to Maintain information to monitor

and control finances

Allocate income to reach

goals Implement disciplined spending Reduce needless spending Achieve

long-term financial goals

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In the Next Five Years… Develop financial goals Do income and expense budget Track your net worth to assess financial progress Use a personal finance system Be open and honest about money Save wealth

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21Obtaining a Loan Isn’t Easy

Getting a loan is based on 1 credit reports 2 employment 3 earnings and 4 personal reputation

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How to Be a Millionaire

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Learn the power of compounding.

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The Snowball Effect

The power of compounding is a

snowball effect where your earnings generate even more earnings through accumulated interest, dividends, and capital gains – and it will grow faster and faster with time.

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Invest in Roth IRA27

Consider selling business in an initial public offering (IPO) – the stock market launch transforms the company from private to public to raise expansion capital.

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