Personal Financial Planning (Chapter 1) - Coggle Diagram
Personal Financial Planning (Chapter 1)
Concept of wealth
All property that has a money value or an exchangeable value
Categories of wealth
Immovable properties, movable properties, financial assets, objects of arts and animals
Significant of financial planning
Improve standard of living, minimize financial disaster, ability to invest optimally and accumulate sufficient wealth over time
Importance of financial planning
Bring happiness and prosperity in life, enjoy living with appropriate living style, provide comfort to family and financial freedom and comfort in retirement
Risk is a chance that the actual return may differ from what is expected.
It is a total variability of return
If total variability of return increases, the risk increases and vice versa
Sources of risk
1) Business Risk
Inability of a company to maintain its competitive position and the growth of stability of its earning.
2) Financial risk
Associated with the way in which a company finances its operation.
3)Purchasing power risk
This risk involve the loss of income and principal is caused by the decreasing in the purchasing power of a dollar.
4) Liquidity risk
The potential inability of the bank to meet its funding requirements arising from cash flow mismatches at a reasonable cost,
5) Interest rate risk
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
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.