BBA2114 Financial Environment and Financial Planning

Flashcards on Financial Planning

Certified Financial Planner (CFP)

Globally recognized title of excellence for financial planning in 27 countries.

FPSB

Financial Planning Standards Board

Financial Planning Functions

Process of collecting, analyzing, and synthesizing financial data.

Financial Planning Components

Financial, asset, risk, tax, retirement, and estate management planning.

Individual's Financial Life Cycle

An individual's financial journey through different life stages.

Financial Planning Process Steps

Evaluate financial position, set financial goals, make a financial plan, act accordingly, and review/revise the plan.

Personal Financial Planning

Plans and processes of financial planning in all aspects regarding a person’s financial activities

Personal Financial Planning Definition

Evaluation and improvement of financial planning to achieve a stable personal financial status.

Financial Planning Conclusion

Financial planning bridges the financial gap between where you are today and where you want to be in the future under individual restrictions.

Importance of Financial Planning

A life-long activity that creates the ability to meet a person's needs and goals, and creates stability in life.

SMART goals

Specific, measurable, achievable, realistic, and timely

Impacts of Negligence on Financial Planning

A person cannot achieve the desired financial goals, may face financial loss, and may face difficulty during retirement life.

People Involved in Financial Planning

Banks, Insurance Co., Securities Firms, Asset Management Co.

Preparation of Personal Financial Statements

Personal balance sheet, personal cash flow statement, and personal budgeting

Personal Budgeting

A process of creating a S-T financial plan to spend your money that sets financial goals within a specific time frame

Components of Personal Budget

income (cash inflows), Taxes and employment obligations, Expenses (cash outflows), Savings and investment

Characteristics of a good personal budgeting

Set goals in line with L-T financial goals, set budget accordingly with individuals’ financial status, have flexibility in budgeting, must communicate and create understanding among family members

variable expenses

food, trasportation

fixed expenses

home mortgage , insurance

50/30/20 Rules of Thumb for Budgeting

50% for necessities, 30% for personal EXP, 20% for saving

Investment Planning

An investment process of meeting a person’s financial goals (S-T, M-T, L-T) with his/her financial resources.

Reasons to invest

need to build wealth, reduce tax burden, enough money

Investment Objectives

short-term, long-term safety, income, liquidity, capital gain, growth, wealth accumulation, tax saving

Consumer Investing

Real estate , commodity , jewelry

Business Investing

Machine , factory

Financial Investing

stocks , bonds

Speculative Risk

Trying to win over stocks, starting business, crypto, gold

Pure Risk

Risk of negative (-) outcomes only.

Objectives: Insurance Products

Risk reduction, Tax minimization, Retirement planning

Retirement Planning

A process of determining the amount of money a person needs to meet expenditures, based on economic status for livelihood, recreation, and deteriorating health after retirement until the end of life.

Tax Planning

A plan to minimize tax payment to the government, within tax incentives framework allowed by law.

Establish and identify relationships between counselee and financial planner

Financial planner needs to use personal ability in building the trust of the counselee so that the counselee is willing to disclose information openly and confidently

Type of Information

Show financial status / health, personal information

Financial Goals based on Time Frame

short-term-Financial Goals, medium-term financial goals, long-term financial goals

Short-term financial goals S-T Objective

To comfort yourself and make your family happy at present time.

Medium-term financial goals M-T objective

To create more assets + wealth, increase happiness, prepare for L-T financial goals

Long-term financial goals L-T objective

To have a happy retirement life