Lecture 1

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CONTENTS

I-Course overview
II-Foundations of FP
Course structure
Internal assessment III-Time Value of Money
Purposes
Class rules Process Present value
Life cycle Future value
Components Single sum of money
Environment Annuities
Determinants

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Course Overview
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 Course structure

Credit points 3
Study length 1 3 weeks
(11 lectures + 1 REI week + 1 Revision)
Prerequisite/Co-requisite Fundamental of Financial Management
Lecturer & Tutor Mr. Luong Minh Hoang, MBA, MSc
hoanglm@hanu.edu.vn
Ms. Nguyen Thi Van Anh, PhD
anhntv@hanu.edu.vn

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Internal Assessment

(1) Participation/attendance Required All semester 10%

(2) Two small tests Required In lectures 40%

(3) Final examination Required To be announced 50%

Total: 100%

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Foundations of financial planning
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Why do we need a sound financial plan?
• Turn financial goals into reality.
• Improved standard of living.
 Necessities, comforts and luxuries.
 Different countries, different cultures, different views about high living
standard.

• Wise spending habits.

 Determining your current and future spending patterns
 Current spending needs vs. Future needs.
 Average propensity to consume 7
Why do we need a sound financial plan?
• Accumulating wealth.
 Financial assets vs. Tangible assets.
 Financial assets:
• Intangible
• Earning assets

 Tangible assets:
• Physical assets
• Either consumption or investment purposes

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The personal financial planning process

Evaluate the
Develop Implement Redefine
Define Monitor and results &
financial the plans goals &
financial control the take
plans and and revise plans
goals progress corrective
strategies strategies & strategies
actions

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 Define financial goals
 “If you don’t know where you’re going, you might not get
there”.
 When setting your financial goals, keep in mind:
1. Your goals should be:
SMART: specific, measurable, attainable,
realistic and timed.
 Specific: clear, well-defined, and leaves no room for ambiguity.
Example: "save money for the future“ vs. "save $10,000 over
the next 12 months for a down payment on a house."

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Define financial goals

 Measurable: must be stated in monetary terms.

Example: "Stick to a budget.“ vs. "Limit discretionary spending to 5 mil
per month and track expenses using a budgeting app."
 Attainable & Realistic : within reach and can be realistically accomplished
based on your current financial situation, resources, and capabilities.
Example: "Save one billion within the next six months” vs. "Contribute an
additional 10% of my monthly income to a savings account for the next
year."

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Define financial goals
 Timed with goal dates and priority: specific timeframe within which you aim to
achieve the goal, and the level of importance or urgency assigned to it.
Example:
 Goal: Enhance Financial Knowledge
 Timeframe: No specific timeline for gaining financial knowledge.
 Goal Dates: No set milestones to measure progress.
 Priority: Priority not clearly established in relation to other financial goals.
 Goal: Debt Repayment
 Timeframe: Eliminate all high-interest credit card debt within 18 months.
 Goal Dates: Pay off 50% of the debt within the first 6 months and clear the
remaining balance by the end of the timeframe.
 Priority: High priority to reduce financial strain from interest payments.
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Define financial goals
2. Financial goals are NOT STATIC.
 As you move through different stages of your life, your needs and
goals will change.
 Passing from one stage to the next, your patterns of income, expenses
and debt will change.
 Unexpected “financial shock” will come.
 The fact is many young people now focus on their careers and
building a financial base before marrying and having children.

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The personal financial planning life cycle

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Define financial goals
3. Would life be sweeter if we had more money?
The answer is….MAY BE. (How about your answer?)
The Psychology of Money:
 Money and its utility are closely linked to values, emotion, and
personality.
 Also, your personal value system – the important ideals and belief that
guide your life – will shape your attitude toward money and wealth
accumulation.
 Example: One may place a high value on family life, while others put
career at the top of the list. Some may spend a high proportion of their
current income on acquiring luxuries.
 Money is an important motivator of personal behaviour. 17
Define financial goals
4. Work together with your family members to establish a set of financial
goals.
 Involves collaboratively identifying, planning, and setting objectives that
contribute to the financial well-being and shared aspirations of the family
unit.
 Divide responsibilities based on each family member's strengths, skills,
and preferences.
 Clearly define who is responsible for specific tasks related to achieving
each financial goal.

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Components of Financial Plan

Asset Acquisition Planning

Liquidity and Insurance Planning

Employee Benefit Planning

Saving and Investment Planning

Tax Planning

Retirement and Estate Planning

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Asset acquisition planning

• Liquid assets (Chapter 4)

• Cash, saving accounts, and money market funds
• Investments (Chapter 12)
• Stocks, bonds, and mutual funds
• Personal property (Chapter 5)
• Moveable property: Automobiles, household furnishings, appliance,
clothing, jewelry, etc.
• Real property (Chapter 5)
• Immovable property: land and anything fixed to it, e.g. house.

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Liability and Insurance Planning

• Liabilities (Chapter 6 and 7)

• Education loans, car loans, credit card, etc.

• Insurance (Chapter 8 – 10)

• Reduce financial risk & protect income (life, health, and disability
insurance)
• Reduce financial risk & protect assets (property and liability
insurance)

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Employee Benefit Planning

• Kinds of employer’s benefits:

• Life, health, and disability insurance.
• Tuition reimbursement programmes or continuing education.
• Pension and profit-sharing programs.
• Retirement plans.
• Flexible spending accounts for child care and health care expenses.
• Stock options
• Sick leave, personal time, and vacation day.
• Micellanious benefits: employee discounts, subsidized meals or
parking.
Chapters: 2 (planning), 3 (taxes), 8 – 1 0 insurance, and 1 4
(retirement)
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Saving and Investment Planning

• Savings: (Chapter 4)
• Investments: (Chapter 11 – 13)
• Savings: to meet unexpected expenses and to accumulate wealth.
• Investments: to accumulate wealth using excess income.

• Tax Planning (Chapter 3)

• Retirement and Estate Planning (Chapter 1 4 & 15)

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Technology in financial planning
• Personal financial apps can help you manage money, stick to a budget, and
help with investment decisions.
• 7 best personal finance apps of 2024:
You Need A Budget (YNAB)
EveryDollar
Budget Apps For Iphone and Android
PocketGuard
Opportun
Honeydue
Best Apps for Couples Spendee
Empower Personal Wealth

Source: Forbes
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The planning environment

1. The players:

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The planning environment (cont.)
2. The economic cylce
3. Inflation

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Determinants of personal income

Demographics Education Geography Career

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Salary By Gender

Source: averagesalarysurvey.com
Salary By Age

Source:
averagesalarysurvey
.com
Salary By Education

Source: averagesalarysurvey.com
Salary By Experience

Source: averagesalarysurvey.com
Salary By Work Type

Source: averagesalarysurvey.com
 Source: TimeCamp.com

Note:
It’s necessary to keep in mind that, there are 2 types of minimum wage in Vietnam.
_ The first type is the common minimum wage of VND 2,340,000 (US$93) which is used to calculate
salaries for employees in state-owned organizations and enterprises, as well as to calculate the social
contribution for all enterprises (i.e., the maximum social contribution is 20 times the common
minimum wage).
_The second type of minimum wage is the Regional Minimum Wage used for employees in all non-
state enterprises based on zones as defined by the government.
In addition, the labor code also ensures minimum hourly wage rates for the relevant regions.
These are:
• Region I – VND 23,800 (US$0.94)
• Region II – VND 21,200 (US$0.84)
• Region III – VND 18,600 (US$0.74)
• Region IV – VND 16,600 (US$0.66)
Time value of money
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Formula

Future value Present value

Single amount Single amount
= + =
+

Annuity Annuity
= × + = × ( , )
+ −
= ×
, = −
+

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Example 1

Assume you’re 30 years old. Your goal is to accumulate $300 ,00 0 in your
retirement fund by the time you’re age 55. How much do you need to invest
today if you estimate that you can earn 5% annually on your investments
during the next 25 years?

$300,000
= 25 = $88,500
1 + 0.05

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Example 1 (cont.)
Assume that at the age 55 you wish to begin making equal annual withdrawals over
the next 30 years from your $300,000 retirement fund. How much will your annual
withdrawals be?

=1
1
1−
1+

$300,000
= 1
1
1−
0.05 1 + 0.05 30

=$ ,
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Example 2

You have accumulated an amount of $5,000 toward the purchase of a new

home (in 6-year period at the price of $45,000). You put all the amount into
the bank, which offers an annual interest rate of 5%. What will be your
account balance at the end of year 6?

= $5,000 1 + 0.05 6 =$ ,
6

You are in the shortage of:

$45,000 − $6,700 = $ ,

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Example 2 (cont.)

You want to accumulate the shortage by putting into the bank an annual equal
amount of money (at year end) over the next 6 years.
How much is that annual amount of money?
+ −
= × => = + −

$ ,
=
+ . −
.

=$ ,
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