Unit 1 The Importance of Planning - PowerPoint Presentation

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Unit 1

The Importance of Planning

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My Bucket List

Have you ever heard of a bucket list?

What would go on yours?? (write on back)

Volunteers to share(Activity: Show Me The Money)

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Learning objectives

Understand the

importance of setting goals

Identify the steps required in constructing a personal financial planCalculate net worthUnderstand the difference between saving and investing

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What is a Plan?

Plan-

a detailed proposal/process for doing or achieving somethingFinancial Plan -

The process of defining your financial goals and developing and implementing a strategy to achieve them

Goal-

something you are trying to achieve

Experts believe that it is important to continually set goals for yourself and you should write them down.

Studies show that people who

write down their goals

are more likely to reach them.

Why does this work?

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The Planning Process

6 step system

Used to

develop goals, strategies, and task lists to achieve an objective

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Steps in the Planning Process

Step 1- Establish a goal

Should be written in SMART format

Specific, Measurable, Attainable, Realistic & Time BoundGoals can be short, medium, or long term.Short-term goals: Under 1 year to achieve

Medium-term goals:

1-5 years to achieveLong-term goals:

5 or more

years to achieve

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Is this a smart goal??

I will do better on my report card in the next marking period.

S

pecific

M

easurable

A

ttainable

R

ealistic

T

ime

Bound

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Here’s how we can make it smart

er

In the next marking period, I will get at least a C on all my math tests, and at least a B on most of my quizzes and homework assignments

.But it's not SMART yet because it has no action plan or benchmarks…

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Here is a pretty SMART goal:

In the next marking period, I will take careful notes and review them at least two days before tests and quizzes so that I can ask the teacher questions about what I don't understand. I will do my math homework before I do things with friends, and when I hand it in, I will ask the teacher about anything I am not sure about. When I get anything wrong, I will make sure to ask the teacher, or one of my classmates how they got the right answer.

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Remember…

A goal is an outcome, something that will make a difference as a result of achieving it

.

It

can't be too ambitious to be out of reach, but also not so simple that it does not challenge.

A

goal has to be realistic with a stretch, requiring effort and focus to achieve it.

That's

why goals need timeframes and measurable action steps along the way so that we can keep track of progress and make adjustments as necessary.

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Smart

financial

goals

Goal – I want to buy a new carSmart Goal:Specific – I plan to save for a down payment on a new carMeasurable – I plan to save $5,000 for a down payment on a new car

Attainable – I plan to save $5,000 for a down payment on a new car by saving $200 from every paycheck

Realistic – It is realistic to save $200 from each paycheck for a down payment on a car because usually waste the money on unnecessary items instead of saving it

Time Bound

– I plan to save $5,000 for a down payment on a new car by saving $200 from each paycheck for two years

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Steps in the Planning Process

Step 2- Gather Information

Determine

what it will take to achieve the goal(s) you have set.Research any information you don’t knowAmount of work may vary in this step

Step 3- Analyze All Your OptionsWhat are the different options you could implement to reach your goal?

What are the pros/cons of each optionConsider what will work best for you

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Steps in the Planning Process

Step 4- Develop a Strategy

Choose your best option from step 3; determine what will need to get done to implement the plan

Create a step-by-step guideStep 5- Implement Your PlanMake a commitment to the strategy you have chosen

Proceed step by step toward your goal

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Steps in the Planning Process

Step 6- Monitor Your Progress

Review your progress periodically to determine if you need to

revise your planStay flexible – it’s ok to have to make adjustments; just don’t lose sight of your end goal

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Activity: The Planning Process

Remember for SMART Goals…

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Planning VS Being Impulsive

There is a natural conflict between planning and being impulsive; between pursuing long-range goals and doing what you feel like doing right now.

In the short run planning may involve sacrifice, but in the long run, it gives you more options!

Can you think of someone who is completely impulsive and someone who is a complete planner?What are some advantages/and or disadvantages of each extreme?

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Benefits of Having a Plan

Live within your means

Allocate funds to meet expenses

Identify financial prioritiesSave and invest to reach financial goals.Meet financial emergencies and reduce credit useReduce uncertainty and conflict about financial affairs

Gain a sense of

financial independence and control

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Benefits of having a plan…

In the short run planning may involve sacrifice, but in the long run can give you more options

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Aspects That Affect Financial Planning

Values

Personality

Knowledge of FinanceREMEMBER:It takes more than luck to get what you want out of life. You have to know what you want and then commit to a plan to meet your goals.

The hazards of not planning include the risk of having a lifestyle of limited choices.

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Planning for your future

It is important to understand your

Financial

position in order to make informed decisions.Before implementing your financial plan, you should first know:The difference between saving and investingTime Value of MoneyDollar Cost Averaging

Your Net WorthThe Rule of 72

These calculations/information will help you better understand what you need to do to successfully accomplish your financial goals.

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Saving vs Investing

Saving-

putting money into an account for

short-term storage Short-term

Low riskMinimal gains

Investing-

committing money to an endeavor with the

expectation of growing

that amount of money

Long-term

Higher risk/ potential for loss

Better gains

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Time Value of Money

Time Value of Money-

the idea that money available at the present time is

worth more than the same amount in the future due to its potential earning capacity.The younger you start investing/saving the more you’ll have at retirement age.

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Dollar cost averaging

Dollar Cost Averaging-

an investment technique of

buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price.

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Calculating Net Worth

Assets-

items you

OWN and that are worth money (valuables)Liabilities- monies/things you OWE

to others (debts)

Net Worth = Assets – Liabilities

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Example: calculating net worth

A

newly married couple has the following

assets: home valued at $250,000

an investment portfolio valued at $100,000

automobiles and other assets valued at $25,000Their liabilities

include:

an

outstanding mortgage balance of $

100,000

one

remaining car loan of $

10,000

What is their Net Worth?

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Answer:

Net Worth = total assets – total liabilities

Net worth = ($250,000 +$100,000 + $25,000) – ($100,000 + $10,000)

Net worth = $265,000 Consistent increases in net worth indicate good Financial healthImportant Note: Net worth could be reduced if assets depreciate (lose value)

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Activity: Spending personality

(Pictures on wall)