The Financial Plan

and its
Components
 What are you planning for?
Goals for which people make a financial plan include:

Education Emergency Fund Buying a car

One of the major Good financial If you can set a
decisions that you will planning will help specific goal, good
be required to make you establish an financial planning
very soon is whether to emergency fund can help you
pursue a college degree that will help you determine whether
or some other type of weather any future you can eventually
post-high school financial crisis. afford the car.
education.
 What are you planning for?
Goals for which people make a financial plan include:

Buying a home Having a family Retirement

It gets increasingly A good financial plan You can begin to
more difficult to can allow you to build your wealth at
save money when have the financial an early age. This
you have to pay flexibility to make may allow you to
rent and buy these choices instead retire at age 40 or
groceries. of having them made 45.
for you.
 What are you planning for?
Goals for which people make a financial plan include:

Charitable giving
A number of people have a
strong desire to donate
some of their money to
worthy causes, and
charitable giving is an
important component of
many financial plans.
 COMPONENTS OF FINANCIAL PLAN
The components of your financial plan work
together to help you build a social financial future.
Component 1:
The purpose of a budget is to
A PLAN FOR YOUR plan your spending and saving,
BUDGETING AND given your income level, so that
you can meet your needs and
TAXES wants.

1. Determining 3. Identifying your

your net worth. expenses.

2. Establishing your 4. Considering the

income. impact of taxes.
Component 1:
The purpose of a budget is to
A PLAN FOR YOUR plan your spending and saving,
BUDGETING AND given your income level, so that
you can meet your needs and
TAXES wants.

1. Determining
Do you have money in the bank?
your net worth.
Do you owe people money? Do
you have a job? What are your
expenses?

Net Worth = Assets - Liabilities

Component 1:
A PLAN FOR YOUR
BUDGETING AND
TAXES

1. Determining
your net worth.
Component 1:
A PLAN FOR YOUR
BUDGETING AND
TAXES

1. Determining
your net worth.
Component 1:
The purpose of a budget is to
A PLAN FOR YOUR plan your spending and saving,
BUDGETING AND given your income level, so that
you can meet your needs and
TAXES wants.

A person’s income often depends

on decisions s/he makes about
education and career choice. In
general, more education or
2. Establishing your
specialized training translates
income. into more income.
Component 1:
A PLAN FOR YOUR
BUDGETING AND
TAXES

2. Establishing your
income.
Component 1:
A PLAN FOR YOUR
BUDGETING AND
TAXES

2. Establishing your
income.
 Component 1:
The purpose of a budget is to
A PLAN FOR YOUR plan your spending and saving,
BUDGETING AND given your income level, so that
you can meet your needs and
TAXES wants.

You will need to have accurate

estimates of your expenses to 3. Identifying your
determine how much you can expenses.
save. Remember that saving for
the future requires sacrificing
spending today. Your
consumption patterns will change
over time and are highly
dependent on your stage of life.
 Component 1:
The purpose of a budget is to
A PLAN FOR YOUR plan your spending and saving,
BUDGETING AND given your income level, so that
you can meet your needs and
TAXES wants.

The more money you make, the

higher the share of your income
you will pay in income taxes. 4. Considering the
impact of taxes.
 LIQUIDITY: How much readily
available cash you have on hand
Component 2: for meeting immediate wants
and needs.
A PLAN FOR
MANAGING YOUR Making sure you have enough
cash on hand - managing your
LIQUIDITY liquidity - involves managing
your money and managing your
use of credit.
Component 3:
● Major purchases such as cars,
houses, and paying for college
A PLAN FOR YOUR typically require borrowing money
for long periods of time.
FINANCING
● This type of borrowing differs from
the temporary, short-term
borrowing that credit cards are
often used for.
● Every time you borrow money, you
have a payment schedule that
requires you to make timely
payments.
Component 3:

A PLAN FOR YOUR

FINANCING
Component 3:

A PLAN FOR YOUR

FINANCING
 INSURANCE PLANNING:
Component 4: Determines the types and
amounts of insurance you need.
A PLAN FOR
MANAGING YOUR ● Managing your risk and
RISK preventing loss through insurance
is key to your long-term financial
security.
● People typically insure houses,
boats, cars, and other major
assets. However, you also need
insurance to cover you in case of
other unexpected events, such as
an illness or injury.
 ● Any other funds that you do not
Component 5: spend should be invested with the
expectation of earning even more
A PLAN FOR YOUR money.

INVESTING ● People invest money so they can

make more money.
● Common types of investments
include stocks, bonds, mutual
funds, and real estate.
● Different types of investments
have different levels of risk. Riskier
investments can produce great
returns but they may also
experience significant losses.
 RETIREMENT PLANNING:
Component 6: Involves determining how much
to save for retirement every year
A PLAN FOR YOUR and how to invest that money.

RETIREMENT
● People who retire early are often
people who began planning for
retirement while they were young.
● The government provides several
ways to save for retirement that
allow you to accumulate wealth
without paying taxes until you
retire.
Component 7:
A PLAN FOR
● You will need these records when
COMMUNICATING you file your taxes and when you
AND KEEPING calculate your net worth.
RECORDS ● Good financial records can be a
motivational tool. You will find
that if you actually write your
goals down and periodically refer
to them, you will be much more
likely to achieve them.