UNDERSTANDING

THE FINANCIAL
PLANNING
PROCESS
 The Rewards of
Sound Financial Planning
• Maintain and improve standard of
living.
• Control spending in order to live well
today and tomorrow!
• Accumulate wealth.
Improving Your Standard of
Living
 Average Propensity to
Consume

The percentage of each rupee of income

that is spent, on average, for current
needs rather than saved.

 What is your average propensity to

consume?
Income spent on current needs
Total income
 The Personal Financial
Planning Process

• Taking conscientious and

systematic steps toward
fulfilling your financial goals.
 The Six-Step Financial
Planning Process
1. Define financial goals.
2. Develop financial plans and strategies.
3. Implement financial plans and strategies.
4. Develop budgets.
5. Evaluate results by using financial
statements.
6. Revise goals as situations change.
1. Define financial goals
2. Develop plans
1. Define financial goals
2. Develop plans
3. Implement plans
4. Develop budgets
FINANCIAL ACTIONS
•Basic asset decisions
•Credit decisions
•Insurance decisions
•Investment decisions
•Retirement and
estate decisions
 1. Define financial goals
2. Develop plans
Prepare financial statements
5. Evaluate results
6. Revise plans
3. Implement plans
4. Develop budgets
FINANCIAL ACTIONS
•Basic asset decisions
•Credit decisions
•Insurance decisions
•Investment decisions
•Retirement and
estate decisions
 Money

• Used as a medium of exchange.

• Financial goals are stated in rupee amounts.
• Need to consider utility, or amount of
satisfaction derived from purchases, as well
as cost.
• May be closely linked to personal
psychological concepts.
• May play key role in personal relationships.
 Attain Your Financial Goals

• Be specific in defining goals and focus on

results.
• Make goals realistically attainable.
• Involve family members and enlist their
cooperation.
• Prioritize goals and set a definite time
frame.
 Put Target Dates on
Financial Goals

• Short-term goals—to be
accomplished within the next year.
• Intermediate-term goals—to be
accomplished in the next 2-5 years.
• Long-term goals—to be accomplished
in time periods greater than 5 years.
 From Goals to Plans:
A Lifetime of Planning

• Early childhood
• High school and college
• Family formation
• Career development
• Pre-retirement
• Retirement
Personal Financial Planning Lifecycle
 Benefit of Planning

• Your money works more efficiently

for you by...
• Utilizing the financial wonder—

The power of compounding

through time!
Growth of $1000 at 8% and
10% Interest
 The Financial Planning
Environment
Financial planning is carried out in an
economic environment created by the
interactions of
 Government
 Business
 Consumers
The Financial Planning
Environment
 Government Policy Decisions
• Provide economic stability
• Maintain acceptable employment levels
 Government Policy Decisions

Monetary Policy
 Controls money supply
 Used to stimulate or contract economic
growth
Fiscal Policy
 Controls levels of taxation
 Sets levels of government spending on
various programs
 Government Policy Decisions

• Economic Cycles
– Stages related to employment and production
levels
– Growth measured by changes in GDP

• Inflation
– Measured by changes in CPI
– Affects purchasing power and interest rates
– Affects financial plans and goals
Economic Cycles
 What Determines Your
Personal Income?

• Age, marital status

• Education
• Where you live
• Career choice
Thank you