Dreams 2012 (Setting Financial Goals)
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Transcript of Dreams 2012 (Setting Financial Goals)
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DREAMS
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1. Buying a Car
2. Trip to Kazakhstan
3. Owning a Home
LIST 3 DREAMS FOR YOUR FUTURE
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CONGRATULATIONS!
• You now have 3 Financial Goals
• By making them SMART Goals you can make them a reality
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STRONG FINANCIAL GOALS
• Are SMART
–Specific–Measurable–Action-oriented–Realistic–Timely
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SMART GOALI will have $1 million inassets by age 65. To
do that I will invest $250per month in mutual
funds with an average annual
earnings of 10%.
SMART GOALI will have $1 million inassets by age 65. To
do that I will invest $250per month in mutual
funds with an average annual
earnings of 10%.
GOAL SETTING SAMPLES
WEAK GOALI want to
be rich
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I WILL BUY A HOUSE WITHIN THE NEXT FIVE YEARS.
To achieve this goal I will:
• Get a copy of my credit report within 30 days.
• Pay off my car one year early by making double payments each month.
• Double my current savings to equal $500 per month to be able to have $30,000 for closing costs, down payment and other expenses.
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THE FINANCIAL PLANNING PYRAMID
Options, Commodities,
etc.
Controlled Spending
AdequateIncome
Adequate Insurance
Goal-Getter
EmergencyReserveSAVINGS
LEVEL
MANAGEMENTLEVEL
Stocks Bonds MutualFunds
RealEstate
HardAssets
INVE
STM
ENT
LEVE
LS
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WHAT IS A SPENDING PLAN?
A written method to achieve your financial goals and manage your
money.
A common name for a spending plan is a budget!
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A SPENDING PLAN:
• Is a guide • Doesn’t need to be down to the penny
• Is easy to understand • Is a reflection of your needs, wants, values and goals
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A SPENDING PLAN:
• Is based on current income and expenses
• Is practical and realistic• Is flexible• Provides for pleasures as well as necessities
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PLANNING WILL HELP YOU:
• Live within your income• Realize personal goals• Maintain a good credit history• Get more for your money• Reduce financial stress and arguments
• Achieve financial competence and confidence
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DEVELOP A PERSONAL FINANCIAL
PLAN
Financial Planning Worksheet
Financial Planning Worksheet
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THE NET WORTH
• Assets - Liabilities = Net Worth
• (What you OWN minus what you OWE)
• A measure of your wealth at a certain point in time
• Calculate yearly
13
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THE CASH FLOW OR BUDGET
• Income• Savings• Living Expenses
• Indebtedness
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INCOME
• Gross Income: total pay, everything you earn
• Net Income: gross pay less taxes
• Take-home pay: net income less any other deductions or automatic allotments
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SAVINGS
• Monthly Contributions to– Reserve Fund– Emergency Fund– Goal-Getter Fund– Investments/IRAs, etc.– TSP
•
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LIVING EXPENSES
• Monthly Amounts• Typical Expenses
– Housing and Utilities– Food– Transportation– Child Care– Clothing– Insurance and Healthcare– Leisure, etc.
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TRACK EXPENSES
• Track for 30 days• Record all expenses each day• Identify expense category• Total monthly expenses for each category
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INDEBTEDNESS
• List Creditor and Total Balance Due
• List only the Minimum Monthly Payment Amount
• List Interest Rate• Total at the Bottom
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SUMMARY BLOCK
• Guidelines for Total Net Income–70% Living expenses–20% Indebtedness–10% Savings
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DEBT-TO-INCOME RATIO
• Total of all monthly debt payments divided by net monthly income (not including mortgage)<15% OK to add credit
15 - 20% Fully extended
21-30% Overextended
>30% Seek help immediately
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DEBT-TO-INCOME RATIO
Example: Net income= $2980 Total minimum monthly debt payments= $545
545 / 2980 = .1829 .1829 * 100 = 18.29Debt-to-income ratio = 18.29%
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Where
should this go?
How can we
fix this?
SurplusSurplus
DeficitDeficit
Whereshould
thisgo?
Howcan we
fix this?
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THE ACTION PLAN
• Ways to Improve Your Plan–Decrease living expenses–Increase income–Decrease indebtedness
• Referrals and Recommended Training
• Goals Section
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YOUR SPENDING PLAN
• Paycheck-by-paycheck breakdown• Forces you to make deliberate spending decisions
If you consider buying something not on your plan:–You must make a choice: take on more
debt, spend money allotted to something else, or pass on the expense.