PERSONAL FINANCE

“Thank you, Mr. Wiggins. I’ll be there at 10:00 a.m. on Saturday.”

Lindsey put down her cell phone and smiled. She had landed her first job, and it was at the mall. A
thousand questions popped into her head. How much money would she make every week? Should she loan
Alicia that $20 to help her buy those new jeans? How much of her earnings would her mom expect her to save for
college? How long would it take her to save enough money to buy that sleek new phone? Now that she had a job,
could she apply for and get a credit card? Then she wondered about how much money she’d need for her planned
trip to the water park this Saturday with Alicia and Deanna—before realizing that she’d have to cancel that date
in order to go to work.

In an instant, Lindsey’s excitement about her new job had faded. She and her friends had been planning
the water park outing for weeks. They were going to be very irritated with her. But she knew she couldn't miss her
first day of work. She also knew that having a job and a little more money was going to make her life easier—and
more fun—in a lot of ways. It would just take a little more planning and adjusting to fit everything in.

Personal Finance

➢ Financial issues that can affect an individual.

Becoming knowledgeable about the many financial issues that can affect an individual—that is, about
personal finance—should be a goal for everyone. All people can improve every aspect of their lives, including
their personal lives, by learning about personal finance and making good financial decisions.

The thought process used in financial decision making will vary from person to person and situation to
situation. However, all good decision makers will use the same basic tools. The purpose of this text is to help you
understand how the decisions you make are actually financial decisions and to provide the knowledge, skills,
and tools necessary to make good choices.

Good planning and money management not only gives you peace of mind, but it also allows you to have
all those things you think you want—in due time. Along with a little self-discipline, the techniques and tools you
will learn about in this book can change your life.

Personal Financial Planning

➢ Process of planning every aspect of your personal finances.

This process includes planning your spending, your borrowing or financing, and your saving and investing
in order to achieve the highest quality of life possible.

STEPS TO PERSONAL FINANCIAL PLANNING:

This plan will be a detailed road map that outlines your financial goals and the spending, financing, and
saving and investing steps that will allow you to achieve those goals. The more detailed you get, the better the
plan will be.

1. Creating a budget as well as plans for managing your liquid assets.

➢ Liquid Assets – Something owned that can be rapidly converted to cash without a risk of significant loss.
Example: Cash
 A good plan will include creating a budget as well as plans for managing your liquid assets. Your liquid assets
are those things you might have that can be very rapidly converted to cash without a risk of significant loss. An
example of a liquid asset is a savings account at a bank.

2. Plans for borrowings and insurance for your assets.

➢ Assets like cars, houses and etc.

3. Plans for investing and ultimate retirement

Most Critical decision you'll face is... CHOOSING THE TYPE OF CAREER YOU WANT TO PURSUE.

Equally as important as finding a job suited to your personality is finding one that has a pay and employee
benefit package that allows you to afford the things you need.

If you are like most people, you will have some financial goals that are far in the future. Reaching them will
involve saving money. Learning how to invest that money wisely can speed your progress toward that goal.
Indeed, at this point in your life, time is on your side. Considering the number of years you have to work with, even
small monthly contributions to your savings can result in the buildup of vast sums of money. In fact, if you begin
now and have some discipline, most of you should be able to amass more than $1 million by the time you retire.
This is possible with a monthly commitment that is lower than what many ordinary people pay each month on
their car loan.

10 REASONS WHY YOU NEED A FINANCIAL PLAN:

1. Manages Cash Flow

➢ Managing your income is one of the primary aspects of a financial plan. You should be aware of where
you are spending your money. In case all the money from your income is getting extinguished by the
month-end, you need to develop a personal finance plan. Lack of a proper budget might lead to several
problems in the long run. Precisely, it helps in tracking your money including your savings, expenses, and
earnings.

2. Helps in Managing Debts

➢ Nowadays, people tend to take a loan for quite a few things like home, education, and buying
automobiles. These liabilities might turn into debt traps if proper planning is not done. Some people have
credit card debts also. Thus, a financial plan becomes all the more necessary to ensure that one does
not end up in a financial crisis. Getting rid of your debts will allow you to focus on other financial targets.
As a financial plan helps you in tracking your money, it will also give you room for prioritizing your
expenses so that you can clear the mountain of debt.

3. Streamline Investments

➢ Investments should be such that a person gets substantial benefits from them. A scattered method of
investment will never be helpful. Sufficient research must be done before narrowing down on what your
portfolio should look like. It is advised to have a diverse portfolio to reduce the risks involved with the
investment. You should not make investments impulsively. Additionally, it is critical to invest in a life
insurance cover.

4. Improves the Standard of Living

➢ The general notion is that you will have to compromise on your standard of living if you start addressing
your EMIs and monthly bills. That is not the case. A good personal financial plan will not make you
 sacrifice your standard of living. On the contrary, it will allow you to live a comfortable life while achieving
your financial goals.

5. Provides Financial Security

➢ Having a financial plan allows you to create an emergency fund. In the case of a health emergency or a
loss of a job, you will not worry about procuring funds or getting an immediate loan. The emergency fund
will provide financial security and allow you to pay for several expenses on time.

6. Builds your Saving Pot

➢ You can save money without a personal financial plan in place as well. However, it might not be the most
efficient way to increase your savings. By creating a financial plan for yourself, you will get a lot of insight
into your income sources and areas of expenses. If you approach an expert providing financial planning
tips, he will tell you to have savings equivalent to your salary of 6 months. It allows you to be better
prepared for financial emergencies.

7. Right Asset Allocation

➢ You need to understand that not all assets provide the same return on investment. During a stock market
rally, equity can be considered a good investment option. In another scenario, when the stock market
might not be doing well, assets like real estate and gold can serve as wonderful investment options.
➢ One of the best financial planning tips for asset allocation would be to invest in multiple instruments. It
will help the person to realize his financial goals without too much risk. The financial plan will devise a
strategy to shield you during turbulent times of market volatility.

8. Helps in Calculating the Right Insurance Cover

➢ In the case of unfortunate demise or a health emergency of a family member, the right insurance cover
proves to be a boon. The right life insurance cover ensures that your family member can pay off the
remaining debts and have a proper standard of living.
➢ On the other hand, a health insurance policy ensures that you can carry out the necessary treatment of
your loved one in the case of a mishap or medical emergency. A financial plan will take into consideration
your income and decide the right insurance covers for you. You can reach out to companies like Canara
HSBC Life Insurance for guidance on which policy suits your conditions the best.

9. Beneficial in Achieving Long-term Goals

➢ A personal financial plan can help you conclude where you want to be after twenty or thirty years. It takes
you a step closer to your dreams. It allows you to achieve your financial goals within a specific period. It
is better to start planning early as it will help you save more money and reach your goals earlier. Early
investment will also result in higher returns.

10. Filters out Unessential Financial Products

➢ One important aspect of financial planning is finding the assets which might not be profitable. It might
be a share that has no chances of growing. You should let go of such stressed assets. In other cases,
people end up taking several insurance policies, and none of them is serving any purpose to the
policyholder. It is merely filling up the pockets of the insurance agents. Thus, you must be wise
while selecting your life insurance cover or other insurance policies.
➢ A financial plan helps you take care of your dreams without taking you away from your responsibilities. It
ensures financial security for your family without affecting your primary goals. Thus, every person should
have a personal finance plan to keep more of his hard-earned money. Most of you might not have the
expertise to make a financial plan on your own. It will be best to take the advice of an expert for the same
BENEFITS OF GOOD FINANCIAL DECISION MAKING:

• Personal finance helps you make informed decisions about your personal situation.

Opportunity Cost

➢ Cost of pursuing one option instead of another expressed as the value of the activity you gave up.

An understanding of personal finance helps you make informed decisions about your personal situation.
For example, every time you decide to buy a DVD (or anything else) you incur an opportunity cost. In other words,
you give up the opportunity to do something else with that money. Rather than buying the DVD, you could have
used the money to go to the movies, buy a pizza, or put gas in your car. You could have also put the money in
savings. When you begin to view every purchase in terms of its opportunity cost, you may begin to change your
spending habits.

• Money does not buy happiness, but financial security certainly makes life easier.

Good financial decisions lead to flexibility and allow you to achieve your true desires in due time without
fear of not being able to make the payments.

WHAT ARE YOU PLANNING FOR?

Every person is different. Everyone has his or her own personal goals. These can range from starting a
business to taking a dream vacation. The possibilities are endless. Brainstorm a bit here and see what personal
goals you have that might require saving some money.

A phone should be a short-term goal. Saving enough money to buy a house is obviously a much longer-
term goal. With good planning, you can identify and begin working toward short-term, intermediate-term, and
long-term goals—all at the same time.

1. EDUCATION

• One of the major decisions that you will be required to make very soon is whether to pursue a college
degree or some other type of post-high school education.

Note that there is a significant relationship between the number of years of education and your earnings
potential. At this point in your life, you should begin to explore various career options and determine the
education required to pursue each option. While you should always focus on a career that holds your interest, it
is also important to investigate the expected payoffs. Education is costly both in time and money. You should
spend some time planning your career choice and then engaging in financial planning to determine how to pay
for that education.

2. EMERGENCIES/RAINY DAY FUND

• Good financial planning will help you establish an emergency fund that will help you whether any future
financial crisis.

Financial planning forces you to think about and plan for those unexpected expenses or the possibility of
an interruption in wages as the result of illness or job loss. If you begin to plan for the unexpected now, you can
be sure that there is enough money set aside to cover those expenses.

3. BUYING A HOME

• The earlier you begin, the less money you have to set aside on a regular basis.
 If you plan carefully, you can set aside money for long-term goals while still having money left over for
more short-term desires. The key is planning. And remember: It gets increasingly more difficult to save money
when you have to pay rent and buy groceries. Take advantage of your freedom and your youth now.

4. HAVING A FAMILY

• Families are expensive.

To have a child and put that child through college is estimated to cost more than $250,000 over the child’s
life from birth to age 22. That is quite a bit of money. Should you begin planning for some of those expenses now?
What about a car at age 16 for the children you might have? Are your children going to public school or private
school? These are all decisions that may be impacted by your wealth. A good financial plan can allow you to have
the financial flexibility to make these choices instead of having them made for you.

5. RETIREMENT

• You can begin to build your wealth at an early age.

This may allow you to retire at age 40 or 45. While you may decide to continue working, it is nice to have
the option to retire.

6. CHARITABLE GIVING

• A number of people have a strong desire to donate some of their money to worthy causes, and charitable
giving is an important component of many financial plans.

Some people may prefer to accumulate wealth and provide a large sum to a specific charity. Others may
give smaller amounts on a regular basis. Knowledge of financial planning can help you achieve whatever goals
you may have in this area.

SOURCES OF INFORMATION:

It may seem difficult or even frightening to think about some aspects of financial planning right now. Goals
may seem too numerous or out of reach. The stakes of good and bad decisions may seem high. Fortunately, there
are many resources available to help you make good choices. And remember—time is on your side.

1. THE INTERNET

• You can use the Internet to research prices of major purchases or look up investment performance data.

There are a number of Web sites that provide payment calculators or information on wealth building.
However, the Internet also poses some dangers. You need skill and care to evaluate the quality of information
you find there. And you must always be cautious about advice from sources that are selling a service. The Internet
has its share of unethical people trying to defraud you and increase their wealth at your expense.

2. JUDGING THE ADVICE OF FINANCIAL PLANNERS/ADVISORS AND FINANCIAL INFORMATION

• Many of you may want to turn some of these decisions over to professionals who understand all the tax
laws and can monitor your investments more closely.
3. Stick with planners who have reputable credentials such as a Certified Financial Planner (CFP) or
Certified Public Accountant (CPA), since credentials indicate a certain level of knowledge about financial
planning.

Remember that no matter who you hire to help you with your finances, you are responsible for monitoring
your own investments. Be cautious. Never rush into a financial decision. If someone tries to rush a decision, it is
rarely good for you.