Your Financial Future
Goals:
Key Terms:
Developing a Financial Plan –To successfully reach financial goals, you must have a plan. A financial plan is a report that summarizes your current financial condition, acknowledges your financial needs and sets a direction for your future financial activity.
Financial planning includes evaluating one’s financial position, setting financial goals, and guiding activities and resources toward reaching those goals. Everyone should have a carefully developed financial plan.
Your financial plan should include all that you know about good money management. This plan should be developed carefully. It should be evaluated and updated frequently. A well-developed financial plan can make your financial life more satisfying.
Financial planning offers several specific advantages.
- Your financial uncertainties will be reduced
- You will gain more control of your financial activities
- Your family and household members will know more about your financial situation in case they
need to assume control of your finances
- Earning, spending, protecting, and saving your resources will be more systematic.
Financial Planning Process – Financial planning experts recommend the following steps.
1. Analyze your current financial condition. You should create a balance sheet and a cash flow
statement
2. Develop financial goals that are responsive to your vision. What short-term and long-term
objectives do you have? How much money will you need and when?
3. Crate your financial plan. This activity will require that you plan various actions for your
saving and spending goals. This step may require help from a financial planner or other
financial specialists.
4. Implement the plan. This may involve buying or selling property or investments, moving bank
accounts, acquiring insurance, or any number of financial activities.
5. Revise your financial plan. As time goes on, you will frequently evaluate and revise your
financial plan.
Financial Inventory – Think of a financial inventory as a financial check up. When you get a medical checkup, the physician assesses your health. A financial inventory is a careful assessment of your finances. A financial inventory is a careful assessment of your finances.
A financial inventory will usually include the creation of a personal balance sheet and cash flow statement. This process will provide information about your current financial position in terms of income, savings, investments, property, living expenses, insurance, and money owed.
Personal Financial Filing System – To keep your financial inventory and other records in order, you should create a personal financial filing system. Well-organized files are key to financial planning. These files should contain all of the documents and records related to such things as contracts, bills, receipts, bank balances, and legal papers. The files will become an invaluable resource to you as you progress with your financial planning.
Financial Life Cycle – Most people’s lives follow a predictable pattern called a life cycle. Each stage of life is distinguished by unique characteristics, requirements, and expectations. For example, in the teen years, people are exploring career options, developing plans for independence, and evaluating future financial needs. In your twenties you will likely train for a career, set up a household, and perhaps marry and have children.
Later in life, you may decide to obtain additional career training or make plans for paying for children’s education. Then retirement plans, investing and estate planning will likely become a priority.
Each life stage has financial matters that need attention. That attention can be provided through the development of a good financial plan. A good plan is one that is flexible and useful throughout several life stages.
Using a Financial Planner – Creating a financial plan is not a simple task. Doing your own financial planning requires time, information, and patience. Financial planners are professionals who can help you. Financial planners should have studied and passed examinations on various topics, including investment insurance, taxes, real estate, and estate planning.
Questions you might ask when choosing a financial planner include the following:
- What experience and training do you have?
- Are you willing to supply references from past clients?
- How are your fees determined?
Implement a Financial Plan – Implementing your plan may involve a wide variety of actions. You may need to move your savings to an account that pays a higher interest rate, you may need to buy bonds, or maybe you will need to earn more money.
The list of financial planning actions can seem almost endless. Several common areas should be considered.
Insure Current Income – Protecting your income is a key financial planning action. Insurance is available to cover loss of income due to disability and unemployment.
Disability Income Insurance –to replace income that is lost when you cannot work because of injury or illness, you can purchase disability income insurance. There are many different disability income policies available. Most of them will pay 60% to 70% of your salary while you are disabled. Usually there is a waiting period of one week to 90 days after you are disabled before benefits begin.
Unemployment Insurance – Unemployment is another hazard to a financial plan. Most states have an unemployment insurance program, operated in cooperation with the federal government. This coverage provides cash payments for a limited time to people who are out of work for a reason other than illness. A local unemployment office will provide guidance to help find a new job. If no suitable job is found, you may qualify for payments to replace part of your lost wages.
Plan for Future Income – The success of any financial plan also calls for a stream of future income. Once people retire, their salaries stop, but they continue to need money to cover living expenses. Workers can ensure that they will have enough income during their retirement years through Social Security, pensions, individual retirement accounts and annuities.
Social Security – A form of income protection comes through the federal government’s Social Security system called retirement, survivors, and disability insurance. This part of the Social Security provides pensions to retired workers and their families, death benefits to dependents of workers who die, and benefits to disabled workers and their families.
Social Security benefits are funded by payroll taxes from both workers and employers. Taxes are deducted from employee’s paychecks. Employer’s match the amounts paid by their employees. Self-employed people pay the entire tax themselves.
When a worker retires, becomes disabled, or dies, monthly payments are made from the trust fund. The amount of benefits depends on how long a worker was employed and how much a worker earned while employed.
Pensions – A pension is a series of regular payments made to a retired worker under an organized plan. Some employers offer plans that provide monthly payments to retired workers. To qualify under most pension plans, you must work for the same organization for a minimum number of years.
Retirement Accounts – People can also develop their own retirement income plans. The most popular of these plans is the individual retirement account (IRA). An IRA is a tax-sheltered retirement plan in which people can annually invest earnings up to a certain amount. Contributions to traditional IRAs are tax-deductible. The investment gains are tax-deferred and the funds are taxed when they are withdrawn after age 59 ½ . Contributions to a Roth IRA are not tax deductible. However, all funds, including any investment gains, are tax-free when withdrawn after age 59 ½ .
Other types of retirement accounts for self-employed workers and people who run their own businesses include the 401 (k), Keogh, SIMPLE, and SEP plans. Each of these involves tax-deferred retirement income. Tax-deferred means the investment earnings will be taxed later, after retirement.
Annuities – An amount of money an insurance company pays to a person who has previously deposited money with the company is called an annuity. This financial agreement is an investment plan for retirement income. You pay the insurance company a certain amount of money either in a lump sum or in a series of payments. In return, the company agrees to pay you a regular income beginning at a certain age and continuing for life or for a specified number of years.
Review Your Financial Plan – A financial plan must be flexible. View your financial plan as a changeable document. Your plan should be evaluated and adjusted on a regular basis to produce the outcomes you desire.
Revise Financial Goals – Once your financial or personal situation changes, you should consider changes in your financial goals. These goals may be short-term or long-term. An example of a short-term goal is saving $1,000 in one year.
By contrast, long-term financial goals are often more complex and involve a longer period. Owning a home by age 30 could be a long-term goal.
Often, short-term goals may need to be given up in order to achieve long-term ones.
Review Financial Activities – Changes in your goals will require changes and savings habits. Although retirement may be years away, preparing for it is a vital part of financial planning. Chances are you will spend many happy and healthy years in retirement. Those years will be happier and healthier if you have an adequate supply of money.
Estate planning involves the accumulation and management of property during one’s lifetime and the distribution of one’s property at death. During your life you build your estate through savings, investments, and insurance. You also plan how you wish your estate to be transferred when you die.
Money management and financial planning are ongoing activities. Every decision you make will affect both current spending and long-term financial security. The only way to have money in the future is to spend less than you receive. The over use of credit cards and other poor spending habits are the basis for long-term financial disaster. Your budget and spending activities may also include sharing some of your resources. This may include religious donations or contributions to local and global organizations tha provide food, housing, and other necessities to people in need.
Assignments:
Define Key Terms (Pg. 409)
Go to Online Resources (see link below). Select Chapter 16.
1 - Click on and complete the Crossword Puzzle, When you are finished, print out your puzzle, write your name on it and turn it in for a grade.
2 - Click on Online Quiz Prep. Take the Web Quiz. When your quiz score is displayed, call the teacher over to see and record your score.
3 - Click on Study Tools
Complete Lessons 1 - 3
Lesson 1 - Sort It Out - Personal Balance Sheet
Lesson 2 - First Things First - The Budget Process
Lesson 3 - Test Your Knowledge - Your Financial Future
When your quiz scores are displayed, call the teacher over to see and record your scores.
Online Resources
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