Description
My first session on Financial Planning
FINANCIAL PLANNING An Introduction
AICAR Business School
PGDM II (Marketing & Finance)
Asset Building & Capital solutions Financial Advisors 7666727741
What is financial planning?
Financial planning is the process of meeting life goals through a “big picture” approach to managing finances
Contd…
2
Asset Building & Capital solutions Financial Advisors 7666727741
What is financial planning?
?
Financial Planning is an exercise aimed at identifying all the financial needs of an individual and translating these needs into monetarily measurable goals at different times in the future. Financial Planning ensures that right amount of money is available in the right hands at the right time in the future to achieve an individual’s financial goals
Asset Building & Capital solutions Financial Advisors 7666727741
3
What is financial planning?
Comprehensive financial planning uses an integrated approach to monitor all aspects of someone’s financial situation:
?Investment
Planning ?Insurance & Risk Management ?Tax Planning ?Retirement Planning & ?Employee Benefits ?Estate Planning
4
Asset Building & Capital solutions Financial Advisors 7666727741
What do you want out of life?
? What
?
matters most to you?
More time with family ? Financial security ? Peace of mind ? Independence
? What
?
will money do for you?
Travel, vacation plans ? Lifestyle in retirement ? Eliminate debt ? Children's education
5
Asset Building & Capital solutions Financial Advisors 7666727741
Financial Objectives
I.
Protection against Personal Risk resulting from a. Premature Death b. Disability c. Unemployment. d. Property & liability loss
Capital Accumulation aimed at meeting a. Family needs b. Educational Needs. c. Emergency Needs III. Provision for Retirement Income. IV. Reducing Tax burden
II.
6
Asset Building & Capital solutions Financial Advisors 7666727741
Financial Planning STEPS
? Step
1: Determine Where You Are Financially ? Step 2: Set Goals ? Step 3: Develop A Plan ? Step 4: Monitor Your Progress
7
Asset Building & Capital solutions Financial Advisors 7666727741
Step 1: Determine Where You Are Financially
? Calculating
Your Net Worth ? Analyzing Your Cash Flow
8
Asset Building & Capital solutions Financial Advisors 7666727741
Calculating Your Net Worth
Net worth = what’s left after you subtract your liabilities from your assets
9
Asset Building & Capital solutions Financial Advisors 7666727741
Analyzing Your Cash Flow
Assessing your cash flow will:
?Indicate
your ability to save ?Let you size up your standard of living ?Indicate if you're living within or beyond your means ?Highlight problem areas
10
Asset Building & Capital solutions Financial Advisors 7666727741
Step 2: Set Goals
? Questions
to be addressed before setting
goals
How long will you continue to work? – What will happen with your income -will it remain the same, rise, or fall? – What will happen with tax rates?
–
11
Asset Building & Capital solutions Financial Advisors 7666727741
Step 2: Set Goals
? What
investment rates can you reasonably expect? ? What about the rate of inflation? ? How much involvement do you wish to have in managing your investments?
12
Asset Building & Capital solutions Financial Advisors 7666727741
Short-Term Goals
? Pay
off credit card and consumer debt ? Start savings plan ? Set aside cash for a contingency fund equaling 3 months' expenses ? Acquire additional term life insurance ? Acquire individual disability insurance
Asset Building & Capital solutions Financial Advisors 7666727741
13
Medium-Term Goals
? Start
college savings plan ? Diversify investment portfolio ? Convert term life insurance policy to cashvalue policy ? House Building ? Capital Building
Asset Building & Capital solutions Financial Advisors 7666727741
14
Long-Term Goals
? Purchase
retirement property ? Retire at age 60 ? Maintain pre-retirement standard of living during retirement
15
Asset Building & Capital solutions Financial Advisors 7666727741
Step 3: Develop Your Plan
? Flexibility ? Liquidity ? Minimization
of Taxes
16
Asset Building & Capital solutions Financial Advisors 7666727741
Flexibility
You need a plan that's flexible enough to change with your circumstances throughout the major and minor life events you experience.
17
Asset Building & Capital solutions Financial Advisors 7666727741
Liquidity
Most financial advisors recommend that you have funds available that are equivalent to 3 to 6 months of your expenses. Appropriate locations for these funds are checking, savings, and money market accounts.
18
Asset Building & Capital solutions Financial Advisors 7666727741
Minimization of Taxes
? Minimizing
taxes must serve as a means to meet your objectives; it isn't an end in itself. ? An effective plan will minimize both income taxes and estate taxes.
19
Asset Building & Capital solutions Financial Advisors 7666727741
Step 4: Monitor Your Progress
? Here
– – –
are the general questions to ask:
Have your financial goals stayed the same? Are you meeting your budget? Are you earning the investment rates of return you anticipated?
20
Asset Building & Capital solutions Financial Advisors 7666727741
Step 4: Monitor Your Progress
– –
To what degree is inflation affecting your finances? Has your tax situation changed?
21
Asset Building & Capital solutions Financial Advisors 7666727741
Investment Life Cycle
Emergencies????
Kid 2’s Marriage Kid 1’s Marriage
Retirement
????
Income
House Car Kid 1’s College Kid 2’s College
Kid 1
Kid 2
Marriage
Savings / Investing
0
Birth and Education
25
Age
Working Life
60
Retired Life
75 +
Asset Building & Capital solutions Financial Advisors 7666727741
Comparison Of Investment Options
Return
Equity Bonds Bank Deposits PPF Life Insurance Gold Real Estate Mutual Funds
Moderate to High Moderate to High Low to High Moderate Low to Moderate Moderate Low to High Moderate to High
Safety
Low High High High High High Moderate High
Volatility Liquidity
High Moderate Low Low Low Moderate High Moderate Low to high Moderate High Moderate Low Moderate Low High
23
Asset Building & Capital solutions Financial Advisors 7666727741
Inflation & Financial Planning
1.
Important factor. Root cause for rise in COL
1.
24
Asset Building & Capital solutions Financial Advisors 7666727741
Power of Compounding
? Disciplined ? Principle
investing.
& rate of return determines how much your amount will grow
25
Asset Building & Capital solutions Financial Advisors 7666727741
Determinants of Personal Income
? Age. ? Martial
status ? Education ? Place of residence ? Choice of career
26
Asset Building & Capital solutions Financial Advisors 7666727741
Financial Cycle
? Accumulation ? Preservation ? Distribution
These translates into four stages of the life cycle
27
Asset Building & Capital solutions Financial Advisors 7666727741
Wealth Creation stage
Financial Goals
Planning to purchase a house in the next ten years Creating long-term wealth for retirement / house
Aggressive Growth Portfolio Cash 10% Equity 75% Bonds 15%
Asset Building & Capital solutions Financial Advisors 7666727741
28
Age – Up to 30 Years
Wealth Management Stage
Financial Goals
Providing for children’s education (5 - 8 years) Planning for children’s marriage (15 - 20 years) Planning for retirement
Balanced Portfolio Cash 20%
Age – 30 to 55 Years
Equity 50%
Bonds 30%
Asset Building & Capital solutions Financial Advisors 7666727741
Wealth Preservation Stage
Financial Goals
Making provisions for higher life expectancy, medical emergencies and financial independence
Conservative Portfolio Equity 20% Bank Deposits 40% Bonds 40%
Asset Building & Capital solutions Financial Advisors 7666727741
Age – 55 Years & Above
30
“Where is the money for holiday?” replied Nita. Nita and Ramesh are a working couple with two kids. They have been planning for a heir major household expenses go for their basi necessaties, kids expenditure and other household requirements. They have no idea where both their salaries drown !.
31
Asset Building & Capital solutions Financial Advisors 7666727741
FINANCIAL STATEMENTS & PLANS
?
? ?
? ? ?
The role of financial Statements in Financial Planning. Time Value of Money. Preparing personal Balance sheet & Income & Expenditure Account. Developing a good record keeping system. Ratio Analysis. Preparing a cash budget
Asset Building & Capital solutions Financial Advisors 7666727741
32
ROLE OF FINANCIAL STATEMENTS IN FINANCIAL PLANNING
? Current
financial Condition. of objectives.
? Achievement ? Not
important only for corporate but also for individuals.
33
Asset Building & Capital solutions Financial Advisors 7666727741
? The
two common used personal financial statements are .
? Balance
Sheet.
? Income
& Expense statement.
34
Asset Building & Capital solutions Financial Advisors 7666727741
doc_753789472.ppt
My first session on Financial Planning
FINANCIAL PLANNING An Introduction
AICAR Business School
PGDM II (Marketing & Finance)
Asset Building & Capital solutions Financial Advisors 7666727741
What is financial planning?
Financial planning is the process of meeting life goals through a “big picture” approach to managing finances
Contd…
2
Asset Building & Capital solutions Financial Advisors 7666727741
What is financial planning?
?
Financial Planning is an exercise aimed at identifying all the financial needs of an individual and translating these needs into monetarily measurable goals at different times in the future. Financial Planning ensures that right amount of money is available in the right hands at the right time in the future to achieve an individual’s financial goals
Asset Building & Capital solutions Financial Advisors 7666727741
3
What is financial planning?
Comprehensive financial planning uses an integrated approach to monitor all aspects of someone’s financial situation:
?Investment
Planning ?Insurance & Risk Management ?Tax Planning ?Retirement Planning & ?Employee Benefits ?Estate Planning
4
Asset Building & Capital solutions Financial Advisors 7666727741
What do you want out of life?
? What
?
matters most to you?
More time with family ? Financial security ? Peace of mind ? Independence
? What
?
will money do for you?
Travel, vacation plans ? Lifestyle in retirement ? Eliminate debt ? Children's education
5
Asset Building & Capital solutions Financial Advisors 7666727741
Financial Objectives
I.
Protection against Personal Risk resulting from a. Premature Death b. Disability c. Unemployment. d. Property & liability loss
Capital Accumulation aimed at meeting a. Family needs b. Educational Needs. c. Emergency Needs III. Provision for Retirement Income. IV. Reducing Tax burden
II.
6
Asset Building & Capital solutions Financial Advisors 7666727741
Financial Planning STEPS
? Step
1: Determine Where You Are Financially ? Step 2: Set Goals ? Step 3: Develop A Plan ? Step 4: Monitor Your Progress
7
Asset Building & Capital solutions Financial Advisors 7666727741
Step 1: Determine Where You Are Financially
? Calculating
Your Net Worth ? Analyzing Your Cash Flow
8
Asset Building & Capital solutions Financial Advisors 7666727741
Calculating Your Net Worth
Net worth = what’s left after you subtract your liabilities from your assets
9
Asset Building & Capital solutions Financial Advisors 7666727741
Analyzing Your Cash Flow
Assessing your cash flow will:
?Indicate
your ability to save ?Let you size up your standard of living ?Indicate if you're living within or beyond your means ?Highlight problem areas
10
Asset Building & Capital solutions Financial Advisors 7666727741
Step 2: Set Goals
? Questions
to be addressed before setting
goals
How long will you continue to work? – What will happen with your income -will it remain the same, rise, or fall? – What will happen with tax rates?
–
11
Asset Building & Capital solutions Financial Advisors 7666727741
Step 2: Set Goals
? What
investment rates can you reasonably expect? ? What about the rate of inflation? ? How much involvement do you wish to have in managing your investments?
12
Asset Building & Capital solutions Financial Advisors 7666727741
Short-Term Goals
? Pay
off credit card and consumer debt ? Start savings plan ? Set aside cash for a contingency fund equaling 3 months' expenses ? Acquire additional term life insurance ? Acquire individual disability insurance
Asset Building & Capital solutions Financial Advisors 7666727741
13
Medium-Term Goals
? Start
college savings plan ? Diversify investment portfolio ? Convert term life insurance policy to cashvalue policy ? House Building ? Capital Building
Asset Building & Capital solutions Financial Advisors 7666727741
14
Long-Term Goals
? Purchase
retirement property ? Retire at age 60 ? Maintain pre-retirement standard of living during retirement
15
Asset Building & Capital solutions Financial Advisors 7666727741
Step 3: Develop Your Plan
? Flexibility ? Liquidity ? Minimization
of Taxes
16
Asset Building & Capital solutions Financial Advisors 7666727741
Flexibility
You need a plan that's flexible enough to change with your circumstances throughout the major and minor life events you experience.
17
Asset Building & Capital solutions Financial Advisors 7666727741
Liquidity
Most financial advisors recommend that you have funds available that are equivalent to 3 to 6 months of your expenses. Appropriate locations for these funds are checking, savings, and money market accounts.
18
Asset Building & Capital solutions Financial Advisors 7666727741
Minimization of Taxes
? Minimizing
taxes must serve as a means to meet your objectives; it isn't an end in itself. ? An effective plan will minimize both income taxes and estate taxes.
19
Asset Building & Capital solutions Financial Advisors 7666727741
Step 4: Monitor Your Progress
? Here
– – –
are the general questions to ask:
Have your financial goals stayed the same? Are you meeting your budget? Are you earning the investment rates of return you anticipated?
20
Asset Building & Capital solutions Financial Advisors 7666727741
Step 4: Monitor Your Progress
– –
To what degree is inflation affecting your finances? Has your tax situation changed?
21
Asset Building & Capital solutions Financial Advisors 7666727741
Investment Life Cycle
Emergencies????
Kid 2’s Marriage Kid 1’s Marriage
Retirement
????
Income
House Car Kid 1’s College Kid 2’s College
Kid 1
Kid 2
Marriage
Savings / Investing
0
Birth and Education
25
Age
Working Life
60
Retired Life
75 +
Asset Building & Capital solutions Financial Advisors 7666727741
Comparison Of Investment Options
Return
Equity Bonds Bank Deposits PPF Life Insurance Gold Real Estate Mutual Funds
Moderate to High Moderate to High Low to High Moderate Low to Moderate Moderate Low to High Moderate to High
Safety
Low High High High High High Moderate High
Volatility Liquidity
High Moderate Low Low Low Moderate High Moderate Low to high Moderate High Moderate Low Moderate Low High
23
Asset Building & Capital solutions Financial Advisors 7666727741
Inflation & Financial Planning
1.
Important factor. Root cause for rise in COL
1.
24
Asset Building & Capital solutions Financial Advisors 7666727741
Power of Compounding
? Disciplined ? Principle
investing.
& rate of return determines how much your amount will grow
25
Asset Building & Capital solutions Financial Advisors 7666727741
Determinants of Personal Income
? Age. ? Martial
status ? Education ? Place of residence ? Choice of career
26
Asset Building & Capital solutions Financial Advisors 7666727741
Financial Cycle
? Accumulation ? Preservation ? Distribution
These translates into four stages of the life cycle
27
Asset Building & Capital solutions Financial Advisors 7666727741
Wealth Creation stage
Financial Goals
Planning to purchase a house in the next ten years Creating long-term wealth for retirement / house
Aggressive Growth Portfolio Cash 10% Equity 75% Bonds 15%
Asset Building & Capital solutions Financial Advisors 7666727741
28
Age – Up to 30 Years
Wealth Management Stage
Financial Goals
Providing for children’s education (5 - 8 years) Planning for children’s marriage (15 - 20 years) Planning for retirement
Balanced Portfolio Cash 20%
Age – 30 to 55 Years
Equity 50%
Bonds 30%
Asset Building & Capital solutions Financial Advisors 7666727741
Wealth Preservation Stage
Financial Goals
Making provisions for higher life expectancy, medical emergencies and financial independence
Conservative Portfolio Equity 20% Bank Deposits 40% Bonds 40%
Asset Building & Capital solutions Financial Advisors 7666727741
Age – 55 Years & Above
30
“Where is the money for holiday?” replied Nita. Nita and Ramesh are a working couple with two kids. They have been planning for a heir major household expenses go for their basi necessaties, kids expenditure and other household requirements. They have no idea where both their salaries drown !.
31
Asset Building & Capital solutions Financial Advisors 7666727741
FINANCIAL STATEMENTS & PLANS
?
? ?
? ? ?
The role of financial Statements in Financial Planning. Time Value of Money. Preparing personal Balance sheet & Income & Expenditure Account. Developing a good record keeping system. Ratio Analysis. Preparing a cash budget
Asset Building & Capital solutions Financial Advisors 7666727741
32
ROLE OF FINANCIAL STATEMENTS IN FINANCIAL PLANNING
? Current
financial Condition. of objectives.
? Achievement ? Not
important only for corporate but also for individuals.
33
Asset Building & Capital solutions Financial Advisors 7666727741
? The
two common used personal financial statements are .
? Balance
Sheet.
? Income
& Expense statement.
34
Asset Building & Capital solutions Financial Advisors 7666727741
doc_753789472.ppt