06a-financialplanningbasicssamplepresentation

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Basics of Personal FinancialPlanning[date][venue][contact information]


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Personal Financial Planning Section

Introduction

About the PFP Section & PFS Credential The AICPA PFP Section provides information,

resources, advocac and guidance for CPAs !hospeciali"e in providing estate, ta#, retirement, ris$

management and investment planning advice toindividuals and their closel held entities

The CPA%Personal Financial Specialist &PFS'credential distinguishes CPAs as su()ect*mattere#perts !ho have demonstrated their financialplanning $no!ledge through e#perience, educationand testing

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Todays Objectives

You gain an enhanced understanding of the basics of financiallanning and ho! a co"anys co"ensation and benefitsrogra"s add to your financial !ell#being

You gain an enhanced understanding of basic investingconcets and ho! to develo your invest"ent lan

You gain an enhanced understanding of ho! a Co"anysco"ensation and benefits rogra"s can contribute to thesuccess of your investing

You identify and co""it to ta$ing the actions you can tosignificantly enhance your financial !ell#being


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-ife .vents/ 0ill 1ou Be 2ead3

% Pre"ature eath

% 'etire"ent

% Serious Illness

% eath of Souse

% Aged Parents

% Children (etting )arried

% Second *o"e

% 'e"arriage

% Starting a +usiness

% Paying for College

% ivorce

% ,ob -oss

% 'elocation

% *o"e Purchase

% +irth of Children

% )arriage

% Te"orary isability

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-ife5s Financial Trade*6ffsC.''/0T 0/C/SSITI/S F.T.'/ 0/C/SSITI/S

C.''/0T /1T'AS F.T.'/ /1T'AS

+asic shelter2 food

clothing2 transortation

and "edical care

+asic shelter2 food

clothing2 cash for e"ergencies

and nursing ho"e care

-arger ho"e2 rivate

college2 retire"ent travel2

be3uests4charity

0e! $itchen2 ne! car2

vacation2 fa"ily gifts

Trade#offs

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The 5alue of a Financial Plan

A financial lan !ill hel you to clarify6

Your financial goals

Strategies to achieve the goals

Secific stes to i"le"ent the strategies

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7/82Personal Financial Planning Section

Areas to /7lore

Saving

)anaging debt

Insurance

Investing

/ducation funding

'etire"ent funding

Pre#retire"ent lanning

Incaacitation lanning

/state lanning

Co"any stoc$ o!nershi

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The Financial Planning Process

8hat do you !ant9

8hat !ill you have9

8ill you have a shortfall9

8hat strategy !ill you e"loy9

8hat actions !ill you ta$e9

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8hat o You 8ant9

These are your financial lanning goals

/ach goal !ill have its o!n hori:on For the period of accumulation

For the period over !hich it !ill (e spent

)a$e a list and refine as you go along

Start !ith broad ideas and !or$ to!ard increasinglysecific and "easurable goals

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8hat 8ill You *ave9

8hat you have no!

8hat you !ill save fro" future inco"e

Future invest"ent earnings on the above ifinvested

/7ected future benefits


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>anaging ?e(t



8hat )anaging ebt )eans

Con3uering e7cessive debt

.sing debt !isely6 Credit cards

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ebt 'atios

*ousing e7ense ratio @ousing e#penses &mortgage, ta#es and insurance' should not

e#ceed +: of gross pa

ross pa is (efore ta#es and deductions

ebt to inco"e ratio Total consumer de(t &not including mortgage' should (e less

than += of ta$e*home*pa

Ta$e*home pa is after ta#es and deductions



8arning Signs of Too )uch ebt

.nable to save ;



Con3uering ebt

Sto borro!ing

Start using a debit card

Prioriti:e your debt reay"ent

See$ lo!er rates

eter"ine the "a7i"u" you can ay

'eay highest cost debt first

Continue aying the "a7i"u"



?ecrease ?e(t or Invest3

Pay do!n debt !hen you cant invest at a higher rate

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.sing *o"e )ortgages 8isely

eter"ining !hether buying is aroriate

Choosing the right tye of "ortgage

eciding if you should refinance

Eno!ing !hether to ay oints

eciding !hether to reay "ortgage rincial



Is Buing a @ome 2ight for 1ou3

+uying 'enting

Change location freuentl o 1es

>aintenance responsi(ilities 1es o

A(ilit to customi"e 1es Perhaps

Pament increases Perhaps -i$el

Investment element 1es o

Ta# (enefits 1es o

Initial costs 1es 1es



Ta# Benefits of @ome 6!nership

ortgage interest G8,===

Propert ta#es +,===

6ther itemi"ed deductions 4,+7=

Total itemi"ed deductions


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Tpes of >ortgages

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Consider a Fi7ed 'ate )ortgage 8hen6

You intend to live in your ho"e for a significanteriod of ti"e2 or

You anticiate rising interest rates in the future

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Consider an A') 8hen6

Fi7ed rate is at least = oints greater thanadjustable rate

You e7ect your inco"e !ill increase enough tocover any otential ay"ent increases

You e7ect to "ove before the rate increases?be!are of reay"ent enalties@

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Prepaing >ortgage Principal

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Consider Preaying Princial 8hen6

You use the standard deduction

You invest conservatively

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)aintaining a (ood Credit *istory

/stablish a good credit history

Obtain your credit reort

.nderstand your credit reort

Correct "ista$es in your credit reort

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Saving H Investing


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I"ortance of Saving and Investing

If you dont have the follo!ing Sufficient assets full devoted to our goal&s'

.#pected future (enefits from third parties

.#pected future (orro!ing

Then you !ill need the follo!ing to reach yourgoal?s@ Future savings devoted to our goals

Future earnings from investing the a(ove if ou invest thoseassets

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Eey Saving and Investing Concets

Saving versus investingCo"bining saving and investing

Saving and investing early

Ta7#deferred saving and investing

Ta7#deductible saving and investingSaving and investing using e"loyercontributions

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Saving ersus Investing

Saving Investing

>eans ot spendingmone?oingsomething !ith

mone to earn areturn

eeds to(e done

In a regular,

disciplinedmanner

Carefull and

!ith dueconsideration

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Co"bining Saving and Investing

Saves 2


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Co"bining Saving and Investing

Stan 5ic$ie

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Saving and Investing /arly

Saves 2


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Saving and Investing /arly

Stan

5ic$ie


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Ta7#eferred /arnings

Saves 2


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Ta#*?eferred .arnings

Stan 5ic$ie

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The Saving Process

8hat do you !ant98hat !ill you have9

8ill you have a shortfall9

8hat strategy !ill you e"loy9

8hat actions !ill you ta$e9

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8hat o You 8ant9

Identify your secific savings goalsIdentify your ti"e hori:on

Luantify your saving goals

Prioriti:e your saving goals

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Identify Your Secific Saving (oals

Pay do!n e7isting debtCreate an e"ergency fund

Save for retire"ent

Accu"ulate a do!n ay"ent for a house

+uild a college fund for your childrens education

Set aside "oney for a secific goal ?vacation2 funand ga"es2 etcH@

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Create an /"ergency Fund

Set aside to > "onths of living e7enses.se it for a crisis ?iHeH2 roof lea$s@

.se it and relace it

ont use it for discretionary sending ?iHeH2

vacation@

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Save for 'etire"ent

o everything ossible 0O8Start earlyMyoull end u !ith "ore

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Identify Your Ti"e *ori:on

Identify nu"ber of "onths or years until goalAllo! as "uch ti"e as ossible6 1ou can accept a lo!er investment ris$

1our monthl saving and investing commitment !ill (e less

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/7a"ine Your Sending *abits

Eee a list of all sending for one "onthCo"are total sending to ta$e#ho"e ay

/7a"ine closely if you have a substantialune7lained ga

+eco"e highly $no!ledgeable about your e7enses

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Identify 8ays to Save )ore

Save your ne7t raiseSave your ne7t bonus

'einvest dividends andinterest

Save all cash gifts

'ent instead of buying?boo$s2 videos2 etcH@

elay buying a ne! car uonaying off resent car loan

Save the Ndonut "oneyMand lose !eight

+uy generic roducts

Tri" your sending by D=

+e creative

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8hat About Investing9

Co"bined !ith savings2 a $ey resource forachieving your financial goals

Investing s$ills are needed to rudently utili:e Compan 4=


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8hat Investing Carefully )eans

Phase I6 -earn investing basicsPhase II6 evelo your invest"ent lan

Phase III6I"le"ent your invest"ent lan

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Investing Basics and Planning


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8hy -earn +asic Investing Concets9

A-- invest"ents involve ris$s .ven so*called ris$*free investments li$e a cash

As such2 aroach investing carefully

-earning basic investing concets is art of

investing carefully

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0hat Are The >a)or Asset Classes3

)ajor AssetClass Characteristics (oals

*istoricalAverage'eturns

Cash >atures in less thanone ear

Capital preservation

-iuidit

*4

Bonds Fi#ed income

aried maturities

Income

Capital preservation

7*9

Stoc$s Compan o!nership Possi(le dividendincome

Capital appreciation


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0hat 2is$s are Involved in Investing3

Pri"ary long#ter"ris$

Inflation ris$ -oss of purchasing po!er

Pri"ary short#ter"ris$

olatilit ris$ Insta(ilit of investment

Other ris$s

Business ris$

>ar$et ris$

-iuidit ris$

Interest rate ris$

Currenc ris$

Inherent ris$s of a particular(usiness

-i$elihood that the mar$et as a!hole !ill fall

2is$ of not (eing a(le to accessmone !hen needed

-oss of principal on fi#ed*rateinvestments due to risinginterest rates

Investment5s value !ill (eaffected ( changes ine#change rates

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@o! are These 2is$s >anaged3

Pri"ary long#ter"ris$

Inflation ris$ Invest in stoc$s

Pri"ary short#ter"ris$

olatilit ris$ @old investments for the long*term

Other ris$s

Business ris$>ar$et ris$

-iuidit ris$

Interest rate ris$

Currenc ris$

?iversif !ithin an asset class?iversif among asset classes

?iversif among asset classes

@ave an emergenc fund

J-adderK portfolios

?iversif among countries orhedge

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*o!ever2 Stoc$s *ave )ore 5olatility 'is$

-o!ereviation

*ighereviationegree of 5olatility

*igher'eturn

-o!er

'eturn

Annual'eturn

D=

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;Danage olatilit 2is$ ( Investing 6ver Time

S"allCo"anyStoc$s

-argeCo"anyStoc$s

-ong#Ter"(overn"ent

+onds

Cash

6ne*1ear @olding Periods

Five*1ear @olding Periods

T!ent*1ear @olding Periods

Average 2eturn

KHQ=;=;HQ= DH>=

#QD=

#D


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)anaging +usiness and )ar$et 'is$s

Portfolio'is$

0u"ber of*oldings

K D Q ;; ;K ;D

Portfolio 'is$R)ar$et 'is$ +usiness

'is$+usiness

'is$

)ar$et 'is$

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Current

Bonds 2eal .state

>one mar$etfunds

Converti(le (ondsSmall*compan stoc$s

Certificates

of deposit -arge*compan stoc$s

Ltilit stoc$s Mero coupon (onds

'eturn eferred

-o!er -i3uidity 'is$ *igher

)anage -i3uidity 'is$ by iversifying

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>anaging Interest 2ate 2is$

)anaged by N-addering Portfolio of +onds

Price

Interest'ates

+onds

Price

Interest'ates

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'is$ 4 'eturn Trade#Offs6 /7a"le ;egree of 5olatility

-o!ereviation

*ighereviationegree of 5olatility

*igher'eturn

-o!er'eturn

Annual'eturn

D=

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2is$ % 2eturn Trade*6ffs/ .#ample +Cash vsD Bonds vsD Stoc$s

Cash +onds Stoc$s

Current ieldAppreciationTotal return.stimated income ta#es N =

After*ta# returnInflation rate

After*ta# JrealK rate of return

2elative ris$

D=D=D

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2is$ % 2eturn Trade*6ffs/ .#ample Su(*Categories 0ithin >a)or Asset Classes

Cash

+onds

Stoc$s

*ard Assets

InternationalS"all Co"any

Stoc$s-arge Co"any Stoc$s

-ong Ter"

Inter"ediate Ter"Short Ter"

*igh 'is$4*igh 'eturn Potential

-o! 'is$4-o! 'eturn Potential

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'is$ 4 'eturn Trade#Offs6 /7a"le >Ta7able vsH Ta7#/7e"t Invest"ents

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# HH H H H#H HH H H H;DHHQ=DHI=QH;=GHCCDHH


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2is$ % 2eturn Trade*6ffsBet!een ?iffering Portfolios

Portfolio A

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8hat One Factor )ost Influences Your 'eturn

Source/ Brinson, Singer, Bee(o!er

Your Asset Allocation

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0h These Priorities3

Ta7ableAccount

'oth I'A.sing After#Ta7Contributions

Traditional I'A.sing Pre#Ta7Contributions

/"loyer>


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8hy These Priorities9

5ic$ie

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8hy These Priorities9

5ic$ie

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Consider Ta#*Advantaged Accounts First

Features Available /"loyer>


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Then Consider Ta#a(le Accounts

Features Available /"loyer/SPP ?;@/"loyerTP ?@

)utualFunds

+ro$erageAccounts

Ta#*?eferred contri(utions o o o o

Ta#*?eferred earnings o o o o

.mploer contri(utions o o o o

Lnlimited contri(utions o o

Automatic saving and investing o

0ide*arra of professionallmanaged funds o o o

Self*direction of fund allocation

Bu .mplr stoc$ at a discount o o o

Bu .mplr stoc$ !ithout fees o o

Immediate penalt*free!ithdra!al

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o! ?evelop 1our Preliminar Plan

Luestion Ans!ers R Plan

1our goal3

1our ris$ tolerance3

1our e#pected rate of return31our time hori"on3

Current assets set aside for our goal3

Future periodic savings%investing3

.#pected future (enefits3

Tpes of account&s' ou5ll use3

Asset allocation !ithin account&s'3

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Then Calculate Your /7ected 'eturn

)ajor AssetClass

AssetAllocation

*istorical'eturn

/sti"ated'eturn

Cash

Bonds

Stoc$s@ard assets

QQQQQQQQQQ

QQQQQQQQQQ

QQQQQQQQQQQQQQQQQQQQ

R 4

R 8

R


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And Then the Future alue of These ItemsE

Contribution To!ard (oal Future 5alue Calculation

Current assets set aside forour goal

Calculate the future value ofthis amount invested at oure#pected rate of return overour time hori"on

Future periodicsavings%investing

Calculate the future value ofthese paments at oure#pected rate of return overour time hori"on

.#pected future (enefits

Calculate the future value of

this amount invested at oure#pected rate of return fromthe date of receipt to the end ofour time hori"on

E Calculated for each account ou are using to invest our savingsD

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The 2esult is 0hat 1ou 0ill @ave

Ta$e intoaccount

Current assets set aside forour goal

um(er of ears to our goal

Future saving .#pected return on our

invested assets

.#pected future (enefits

To arrive at 0hat ou !ill have

:=

E P i ' b


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Eey Points to 'e"e"ber

Financial lanning !ill hel you clarify goals2strategies and action stes

eter"ine !hether you have too "uch debt anddevelo a lan to con3uer it

)a$e !ise decisions about using debtCo""it to saving and investing

Save and invest early

Pay yourself first

-earn as "uch as you can about investing todevelo a lan and invest according to yourNco"fort level

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uestions3[insert contact information here]

Special than$s to evin 2oach, CPA%PFS of Te#as AH> Lniversit for contri(uting contentD

06a-financialplanningbasicssamplepresentation

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