Financial Planning

By: Celeste Utter

Component 1- A Plan for your Budgeting and Taxes

Creating a budget involves four steps:
1) Know your Net Worth
2) Calculate your income
3) Identify your Expenses
4) Consider the impact of Taxes

~The Formula for calculating Net Worth: Asset-Liabilities= Net Worth
~Assets are anything you own.
~Liabilities are anything that you owe.
~Equity means ownership.
~Negative equity is when you owe more for an asset than it is worth.
~Income is the money coming in through your wages earned.
~Expenses will help you determine how much you spend each month

Component 2- A Plan for Managing your Liquidity

~Liquidity is the ease of which an asset is converted to cash.

~Money Management and Credit Management decisions are BOTH involved in managing liquidity.

~Credit Management involves making decisions about credit and getting credit. Credit is used by the average American to meet cash shortfalls.

~An emergency fund is a saving account specifically earmarked for use of emergencies.

~High school students should have up to $500 in the emergency funds, Adults should have $1000 saved up.
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Component 3- A Plan for your Financing

~Major purchases area often acquired through borrowing LARGE sums of money for a longer period of time, like cars and houses which is frequently paid through borrowing money, or Financing.

~Payment Terms are interests rates, time period of the loan, amount borrowed.

Component 4- A Plan for Managing your Risk

As you begin to build wealth assets, you will need to protect those assets. This is often referred to as risk management and includes the purchase of insurance, which helps share, limit, and transfer risk of lose.

Component 5- A plan for your Investing

~ Investment is a crucial step for wealth building.

~ Wealth building is when you begin to acquire additional assets designed to increase your net worth.

~ When you invest you enable your money to grow, accumulate, and start working for you.

~ Risk which is the possibility of lose as well as the various types of investments.

Component 6- A planning for your Retirement

~ With the power of compound interest, the sooner you start saving and investing, the better off you will be.

~ Determine how much money you need to save to retire at a desired standard of living, how to invest those funds , and how much you will need to save regularly to achieve that goal.

Component 7- A plan for Communucating and keeping Records

~ Be organized.

~ Have everything you need to complete and file tax returns, calculate your net worth and apply for loans and financing.

~ Have short, intermediate, and long term goals.

~ Make sure you're in good terms with family so in case you fall ill or die your financial wishes can still be fulfilled.