Financial Planning Process and Risks Flashcards
What is the financial planning process?
Set your objectives, measure your position, research your options, act, and review regularly
Give examples of objectives you may set.
Have enough savings to cover emergencies, buying own home, have a reasonable comfortable income in retirement
How could you measure your financial position?
By preparing a personal budget and reviewing personal assets and liabilities
Why is it important to measure your financial position?
It provides an opportunity to evaluate assets and borrowings
How might you research your options?
By identifying the steps needed to make progress towards achieving goals, understand all terminology and potential risks
How often should you review?
On a regular basis (at least once per year)
Why should you review regularly?
To ensure that progress is being made towards the desired outcome
Give examples of personal finance issues that people face.
When to take on debt and how to manage it, how much to save, whether to buy or rent, when to start saving for retirement
What happens if a financial product is riskier?
The greater the potential return it would offer
What happens if a financial product is more secure?
The lower the rate of return expected
What are the different types of risk?
Inflation, unexpected changes in interest rates, political risk and market risk
What is inflation?
When the costs of goods and services are rising; it is measured in percentage terms
What is Retail Prices Index (RPI)?
A measure of inflation based on the change in price of an average basket of goods and services
What is the Consumer Prices Index (CPI)?
The same as RPI, but it excludes a number of housing costs including mortgage interest, council tax and house depreciation
What is the real rate of return?
The return earned after the effect of inflation is taken into account
