Topic 5 - Financial Planning Flashcards
What is budgeting?
Process of planning monthly income and expenditure.
What is a cash flow analysis?(1+2)
Putting a monthly budget together
- looks at inflows and outflows
- calculates the net balance at the end of a specified time period.
Why would someone set out a budget? 2
- allows people to manage and keep control over their money
- allows the achievement of short-term objectives they’ve set themselves
What does a cash flow forecast do?
bring together monthly figures into an annual statement
- forecasts for several years can be combined to plan a large future expenditure being financed
What planned events may people plan for financially?
- life events
- retirements
- death
What life events may people plan for?(6)
- going to uni
- buying a car or house
- going on a large trip
- having a big wedding or civil ceremony
- starting a family and making provisions for children
- moving abroad
Why would people financially plan for retirement?
for people who hope to live for long enough to retire and enjoy comfort and leisure in the old age.
- must save in a pension fund or long term investments over a long period of years in order to have sufficient income when they stop work
Why would someone financially plan for death?
- someone without family may not feel the need to do so
- ensure their dependants have an income after their debt, that their debts will be paid off or that they can leave an inheritance to their children or grandchildren
What factors can determine what events people plan for? (5
- their family situation
- financial situation
- current lifestyle and expectations on how this might change
- their personality
- attitude to risk
What are features of a good financial plan? (5)
- realistic
- clear
- timely
- flexible
- documented
Why is ‘realistic’ a good feature of a good financial plan?
the goal should be achievable In the context of their income and expenditure
- can be financially damaging if unachievable as can lead to debt or loss of confidence and change in attitude to risk
Why is ‘clarity’ a good feature of a good financial plan?
- must be clear about how much it will cost
- accurate idea of how long it will take to save up for or to finance with credit
Why is ‘Timely’ a good feature of a good financial plan?
Timescales need to be applied to a budget
- longer timescales the more planning is required, the earlier the better;
- as time passes, there is less scope. for turning a negative situation around
Why is ‘flexible ‘ a good feature of a good financial plan?
- due to an inability to predict future exactly, taking into account unexpected events allowing changes to be made to plans when necessary
Why is ‘documented’ a good feature of a good financial plan? (3)
- writing down to become a fact of life
- then easier to keep to it than if it is simply ague idea in someones mind.
- easier to monitor its progress if it exists on paper
