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Financial Planning Process
I. Part 1 - Financial Planning
A. Ch. 1 - The Financial Planning Process
1. Facing Financial Challenges
2. The Personal Financial Planning Process
a. Step 1: Evaluate Your Financial Health
(1) Record keeping is the first step to taking control of your financial well-being.
b. Step 2: Define Your Financial Goals
(1) You can't get what you want if you don't know what you want
c. Step 3: Develop a Plan of Action
(1) Flexibility
(2) Liquidity
(3) Protection
(4) Minimization of Taxes
d. Step 4: Implement Your Plan
(1) Your financial plan is not a goal, it's a tool, a road map to achieve your goals.
e. Step 5: Review Your Progress, Reevaluate, and Revise Your Plan
(1) As time passes and things change, you must review your progress and make adjustments.
3. Establishing Your Financial Goals
a. The Life Cycle of Financial Planning
(1) Stage One: Early Years, a time of Wealth Accumulation (through age 54)
(a) Family formation
(b) Insurance planning
(c) Home purchase
(d) Initial goal setting
I. Tax and Estate Planning
(2) Stage Two: Approaching Retirement, the Golden Years (ages 55-64)
(a) Reassessment of retirement goals
(b) Tax and Estate planning continues (review)
(3) Stage Three: The Retirement Years (age 65 and over)
(4) Complications:
(a) Marital status
(b) Employment status
(c) Economic outlook
(d) Age
(e) Number of dependents
(f) Family Money (inheritance)
4. Thinking About Your Career
a. Choosing a Major and a Career
b. Getting a Job
c. Being Successful in Your Career
5. What Determines Your Income?
6. Fifteen Principles of Personal Finance
a. The Risk-Return Trade-Off
(1) Saving money - put off spending or delay consumption - and invest to earn interest and grow money, so even more can be bought in the future.
(2) Minimum return must be greater than the anticipated level of inflation.
b. The Time Value of Money
(1) Understand  how investments grow over time.
(2) Used in comparing dollar amounts in different time periods.
(3) Compound interest: Interest paid on interest (as well as principle)
c. Diversification Reduces Risk
(1) Acquisition of a variety of different investments instead of just one.
d. All Risk Is Not Equal
e. The Curse of Competitive Investment Markets
(1) Efficient markets: Prices instantly reflect all publicly available information and the price of any investment accurately reflects the best estimate of its value.
f. Taxes Affect Personal Finance Decisions
g. Stuff Happens, or the Importance of Liquidity
h. Nothing Happens Without a Plan
(1) People spend more time planning their summer vacation than they do planning their financial future.
i. The Best Protection Is Knowledge
(1) A financial planner can help you establish a plan, but it's up to you to manage it.
j. Protect Yourself Against major Catastrophes
(1) Insurance as protection vs. as investment
k. The Time Dimension of Investing
(1) The longer you plan to hold an investment, the more risk you can afford to take.
l. The Agency Problem - Beware of the Sales Pitch
(1) Insurance salespeople, personal financial advisors, stockbrokers may actually be acting in their own best interests rather than in your best interest.
m. Pay Yourself First
(1) Set aside your savings first; what is left becomes what you can spend.
(a) Acknowledge that your long-term goals are paramount.
n. Money Isn't Everything
(1) Don't invest at the cost of happiness.
o. Just Do It!
B. Measuring Your Financial Health and Making a Plan