Chapter 1- Overview Of Financial Plans Flashcards
Personal financial plan
Specifies financial goals and describes the spending, financing, and investing activities that are intended to achieve the goals and the risk management strategies that are required to protect against uncontrollable events.
Per capita debt
The amount of debt each individual would have in Canada if total debt was spread equally to everyone
Financial planning standards council (FPSC)
Is a non-for-profit organization created to benefit the public through reinforcement and promotion of ethical standards of financial planning
What are the 5 components of a financial plan?
- Budgeting and tax planning
- Financing your purchases
- Protecting your assets and income (insurance)
- Investing your money
- Planning your retirement and estate
Budget planning is…
The process of forecasting future income, expenses and savings goals
Assets
What you own
Liabilities
What you owe, your debt
Net worth
The value of what you own minus the value of what you owe
Assets-liabilities
Liquidity
Access to ready cash, including savings and credit to cover short term and unexpected expenses
How can you enhance your liquidity?
Money management and Credit management
Money management is..
Decisions regarding how much money to retain in liquid form and how to allocate the funds amount short-term investments
Why should you have an emergency fund?
If you cannot cover short term needs or insufficient liquidity amounts
Credit management
Decisions regarding how much credit to obtain to support your spending and which sources of credit to use
Why would you need a loan?
To finance a large expenditure
What is financial risk?
Exposures to events that can cause financial loss.
Risk management
Decisions about whether and how to protect against risk
Insurance planning
Determining the types and amount of insurance to protect your assets
Why should you invest
Any savings beyond what you need to maintain liquidity
Where can you invest money?
Stocks, bonds, mutual funds, real estate
Retirement planning
Determining how much you should set aside each year for retirement and how you should invest those funds
Estate planning
Determining how your wealth will be distributed before and or after you die
Protects your wealth
How can psychology affect a financial plan?
Shopping therapy
Wants overpower needs
A hopeless feeling that the small amount you save will never be enough
Developing a financial plan 6 stages
- Establish financial goals
- Consider your current financial position
- Identify and evaluate alternative plans that could reach your goals
- Select and implement the best plan for achieving your goals
- Evaluate your financial plan
- Revise your plan
Establishing your financial goals involves what?
SMART specify your goals Measure your goals Act on your goals Select realistic goals Timings of goals
What is personal finance?
The process of planning your spending, financing, and investing activities while talking into account uncontrollable events. Such as death, or disability in order to max your financial situation over time
