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PF Planning Ch1

Personal Financial Planning

QuestionAnswer
Why is Personal Financial Planning so important? Manage the unplanned Accumulate wealth for special expenses Save for Retirement Cover your assets Invest intelligently Minimize your taxes
What are the five basic steps of personal financial planning? 1. Evaluate your financial health 2. Define your financial goals 3. Develop a plan of action 4. Implement your plan 5. Review your progress, reevaluate, and revise your plan
When setting financial goals, what are the three types of goals and their time periods? 1. Short term (<1 yr) 2. Intermediate term (1-10 yrs) 3. Long term (>10 yrs)
When developing an action plan, your financial plan should include four common factors: Flexibility (unplanned) Liquidity Protection (insurance: flood, fire, major illness, death) Minimization of taxes
Define Liquidity: The relative ease and speed with which you can convert non cash assets into cash.
What are the three stages in the typical individual's financial life cycle? Stage 1 Early Years - Wealth Accumulation (21-54) Stage 2 Approaching Retirement - The Golden Years (55-64) Stage 3 The Retirement Years (65 and over)
Define Inflation: an economic condition in which rising prices reduce the purchasing power of money.
When do people typically start Estate Planning? In their 50's.
What financial issue do people worry about the most? Retirement (Rockefellar foundation report)
What are the first five Principle of Personal Finance? (1-5) 1. The Best Protection is knowledge 2. Nothing happens without a plan 3. The Time Value of Money 4. Taxes affect personal financial decisions 5. Stuff happens, or the importance of liquidity
What are the 6-10 Principles of Personal Finance? 6. Waste no, want not - smart spending matters 7. Protect yourself against major catastrophes 8. Risk and return go hand in hand (diversification) 9. Mind games, your financial personality, and your money 10. Just do it!
Why is it tougher for women to achieve financial security? Women generally earn less money than men Less likely to have pensions Qualify for less income from Social Security Live longer than men
What are the two major principles women need to follow to achieve financial security? Principle 1 - The Best Protection is Knowledge Principle 2 - Nothing Happens Without A Plan
Created by: jhare76