topic 6

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A short-term plan might run over just one year – for example, it might be a plan to

have enough money available every year to take a summer holiday. Alternatively, it

might be a monthly or even weekly plan, for instance to have enough money from

the monthly or weekly income to pay the bills over that period. Short-term plans were

covered in Unit 1 so we will not be considering them here; nevertheless, it is

important to remember, when discussing

medium-term and long-term plans, that the

short-term plans are still there and must be

achieved.

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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.

But it is most likely that the person will then start saving up for something else and

so there will be a new medium-term plan; or this might even begin before the end of

the first plan and so there will be some overlap.

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These plans span a longer period of years. Two good examples are buying a home

and paying back a mortgage, and saving for retirement. A normal mortgage period

is 25 years and borrowers have to meet the repayment obligation every month. This

obligation affects their short-term and medium-term plans since the mortgage

payment leaves them with less money to save or to spend on something else. This

plan spans their young adulthood up to early or late middle age.

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There are many different products on the market to fulfil people’s many and various

financial needs, and choosing the right product for the right situation can be a

complex task. In order to make an informed choice, a person should look carefully

at their wants and aspirations, at their position on the risk / reward spectrum and at

the risk / reward spectrum of the product. Then, if necessary, they should take

professional financial advice before proceeding

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The products chosen by any individual depend partly on their risk profile. This in

turn depends partly on their personality, their financial situation and their age – it

may vary according to the stage they have reached in the life cycle (see below). It

can also differ according to the nature of a life event – for example, someone who

needs money quickly in an emergency is less likely to consider the risks of borrowing

the funds.

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A prospective customer needs to make two main decisions concerning the product

group and the product brand; both involve a consideration of risk. The first is the

risk associated with a particular type of product and the second is the risk profile of

a specific brand.

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saving by its nature is not a risky exercise. It is

considered to be a sensible thing to do as it helps someone to reduce their future

risk by ensuring that they have a lump sum which they can draw on in an

emergency and that they will have a sufficient income in retirement. Some people

might consider that saving too much is risky because it leaves less money for

current consumption.