Topic 5 Flashcards
What is the purpose of a budget?
It allows someone to manage and keep control over their money
(and achieve short term objectives they’ve set themselves)
How does a cash flow forecast link to a budget?
It brings together the monthly figures into an annual statement
(& how they can plan how a large item of expenditure is going to be financed)
What are some planned events for medium-long term financial planning?
• Life events (uni, wedding etc)
• Retirement
• Death
What are some factors that influence planned events?
• Family situation
• Financial situation
• Current lifestyle (how this may change)
• Personality
• Attitude to risk
What are positive unplanned events?
• Ones that bring in money (promotion etc)
• Happy events (marriage, children)
What are negative unplanned events?
• Spending unnecessary money (car breaking down)
• Loss of income (redundancy, illness)
• Life events (divorce)
What are features of effective financial planning?
• Realistic (context of their income)
• Clear (how much it’ll cost)
• Timely (time needed)
• Flexible (changes can be made)
• Documented
What are the key financial planning tools?
• Budgets
• Cash flow forecasts
Why is it important to be in control of your financial plans?
To know that you’re on target to achieve your goals
Why is it important to monitor your financial plans?
It allows people to know im advance what their balance is likely to be at the end of the period (surplus or deficit)
What are the stages of planning?
1) Decide on the aspiration
2) Establish realistic timescales
3) Establish a starting position
4) Establish priorities
5) Document the plan
6) Implement the plan
7) Review progree
What are the main financial products that help achieve goals?
• Saving
• Borrowing
• Insurance
What is the consequence for people who fail to draw up a budget?
They’re less likely to achieve their wants and aspirations on any timescale
What is a financial footprint?
A persons financial reputation or creditworthiness
(their behaviour at easily stages of life can have a negative impact on their furture life)
What are some consequences of not effectively planning for when you’re “old” ?
• Standard of living will be lower
• Dependent on state pension & any other benefits (if not more in a pension fund)
• May be forced to work for longer
