Please enable JavaScript.
Coggle requires JavaScript to display documents.
topic 6 financial planning and informed choice, SAVING AND INVESTMENT ONLY…
topic 6 financial planning and informed choice
6.1 Financial Budgeting within life cycle
A short-term plan
might run over just one year.important to remember, when discussing medium-term and long-term plans, that the short-term plans are still there and must be achieved.The result of the short-term plan partly determines the success of the longer-term ones
medium term plan
These plans can be achieved after a few years, for instance someone saving up for a car might put money aside over three years and then the plan has been achieved.
2 to 3 years
Long-term plan
These plans span a longer period of years. Two good examples are buying a home and paying back a mortgage, and saving for retirement.
6.2 Making informed choices
The risk / reward spectrum of the customer
the amount of risk faced by someone in terms of a given situation is calculated by looking at the joint effect of the probability of the risk happening and the impact and severity of that risk if it does occur.
In some financial products carry some risk and there is no risk-free savings, loan or insurance product.
the greater the risk
someone takes,
the greater the reward
they want to receive. Insurance is a type of risk transfer and a person’s willingness to insure their financial risks also depends on how they feel about risk.
A riskier investment has a different view of
the balance between risk and reward
. They do not want to lose their money but they are prepared to take a higher risk in order to have the chance of a higher return.
Their personality. The amount of money they have at their disposal.The stage of the life cycle they are in.
6.3 Mating a solution to the circumstances
the intended purpos
e – for example, achieving an aspiration or paying for a life event
how the product fits into the overall product mix.
The timescale
– medium term or long term
affordability
– that is,taking into account the person’s income and other expenses
6.4 Product mixes
Their income there is a strong relationship between income and savings. Someone on a low income is unlikely to be able to save.
People’s attitudes to saving – some people save over a long period because they feel it is a sensible thing to do. For some people, this is an attitude and a habit they learned in childhood.
The necessity of saving – someone who is desperate to buy an expensive item and cannot access a loan is forced to save up for it over a number of years.
Their income– this determines the amount they are able to repay over a given period and it also determines the amount a provider is willing to lend them.
Their other expenditure, especially the mandatory and necessary items– themore someone spends on other items, the less they can afford to borrow. The time period of the loan– the longer the period, the more they can borrowand repay.
The necessity of borrowing– this depends on the cost of the item relative totheir income. For example, most people cannot afford to buy their home unlessthey can get a mortgage
6.2
SAVING AND INVESTMENT ONLY
BORROWING ONLY
: