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PERSONAL FINANCIAL PLANNING - Coggle Diagram
PERSONAL FINANCIAL PLANNING
CONCEPT OF WEALTH
DEFINITION OF WEALTH
:check: abundance of valuable material possessions or resources. :check: all property that has a money value or an exchangeable value. :check: an income beyond the daily and basis requirements of a family or surplus income.
FEATURES
:check: accumulation of income over a period of time
CATEGORIES OF WEALTH
immovable properties
movable properties
financial assets/ commercial papers
objects of arts
animals
SIGNIFICANT AND IMPORTANCE OF FINANCIAL PLANNING
SIGNIFICANT
:check: improve standard living
:check: minimize financial disaster
:check: ability to invest optimally
:check: accumulate sufficient wealth over time
IMPORTANCE
:check: bring happiness and prosperity in life
:check: enjoy living with appropriate living style
:check: provide comfort to family
:check: financial freedom and comfort in retirement
PERSONAL FINANCIAL PLANNING PROCESS
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i. ASSESS CURRENT FINANCIAL RESOURCES/ STATUS
list all assets and liabilities
list all income sources and expenditure
ii. DEFINE FINANCIAL GOALS
goals depends on a person's wants, needs, personality, attitude values
generally career, credit card, car, condominium and club membership; house and education fund; retirement fund; luxury home
a)
long and short term goals
b)
realistic
c)
specific and quantifiable
d)
set dates
e)
priorities
iii. DEVELOP SYSTEMATIC FINANCIAL PLANS
iv. IMPLEMENT FINANCIAL PLANS
:check: to follow what have been decided
:check: maintain discipline to implement with in time frame
:check: to review progress:
v. MONITOR RESULTS AND REVIEW PLANS/ GOALS
:check: monitor closely progress
:check: if progress slow, take corrective action
:check: if financial conditions change drastically, goals become unrealistic then revise the goals
RISK IN FINANCIAL PLANNING
SOURCES OF RISK
BUSINESS RISK
:check: inability of a company to maintain it's competitive position and the growth or stability of its earnings
FINANCIAL RISK
:check: associated with the way in which a company finances its operation
PURCHASING POWER RISK
:check: the risk involve the loss of income and principal is caused by the decreasing in the purchasing power of a dollar.
LIQUIDITY RISK
:check: the potential inability of the bank to meet its funding requirements arising from cash flows mismatches at a reasonable cost.
INTEREST RATE RISK
:check: the risk of loss of principal bought about by changes in the prevailing interest rate paid on new securities that are currently being issued.
6, MARKET RISK
:check: the loss of capital owing to changes in common stock prices, and is usually associated with changes in investor expectations about the prospects of the company.
:check: risk is a chance that the actual return may differ from what is expected.. :check: it is total variability of return.. :check: if total variability of return increases, the risk increases and vice versa