Life Cycle of Financial Planning
Take Charge of Your Finances
© Family Economics & Financial Education – May 2010 – Introduction to Finance Unit – Life Cycle of Financial Planning – Slide # 2
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
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Financial Planning
Financial planning is a tool used to achieve financial success based upon the development and implementation of financial goals.
Many people follow a similar financial pattern during their life
BUTEveryone has an individualized
financial plan.
© Family Economics & Financial Education – May 2010 – Introduction to Finance Unit – Life Cycle of Financial Planning – Slide # 3
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.11.2.G1
Financial Plan InfluencesValues, Goals & Personal Choices
Major Life
Events
Lifestyle Conditio
ns
Life Cycle Needs
Financial planning is
influenced by many factors:
These factors can be expected and unexpected.
© Family Economics & Financial Education – May 2010 – Introduction to Finance Unit – Life Cycle of Financial Planning – Slide # 4
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.11.2.G1
Financial Goals
• Financial goals are specific objectives to be accomplished through financial planning
• Financial goals should be SMART goals:– Specific– Measurable– Attainable– Realistic– Time Bound
An essential step to
creating a financial
plan
© Family Economics & Financial Education – May 2010 – Introduction to Finance Unit – Life Cycle of Financial Planning – Slide # 5
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.11.2.G1
SMART Financial Goals•St
ate exactly what is to be done with the money involved.
Specific •Wr
ite the exact dollar amount.
Measurable
•Determine how it can be reached, which is often determined by the individual’s budget.
Attainable
•Do not set the goal for something unattainable or unrealistic.
Realistic
•Specifically state when the goal needs to be reached.
Time Bound
© Family Economics & Financial Education – May 2010 – Introduction to Finance Unit – Life Cycle of Financial Planning – Slide # 6
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.11.2.G1
Lifestyle Conditions
Marital status Single, married,
divorced, widowed
Employment status
Employed, unemployed, facing
unemployment
AgeAge of all family
members
Number of dependents Children, spouse,
parents, other family
Economic outlook
Interest rates, employment level,
salary rates
Education Education level of family members, tuition needs for
children
Health statusHealth of all family
members
IncomeAmount of income
© Family Economics & Financial Education – May 2010 – Introduction to Finance Unit – Life Cycle of Financial Planning – Slide # 7
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.11.2.G1
• There is a typical life cycle pattern that applies to most people
• Includes three stages • The amount of time it takes to
move through the financial life cycle varies for every individual
Financial Life Cycle
A life cycle is a series of stages in which an individual passes during his or her
lifetime
© Family Economics & Financial Education – May 2010 – Introduction to Finance Unit – Life Cycle of Financial Planning – Slide # 8
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.11.2.G1
An Individual’s Financial Life Cycle
$
Approaching
Retirement
Years
Retirement YearsSingle * Marriage * Start and Raise Family
0 20 30 40 50 60 70 80Years of Age
Stage 1: Basic Wealth Protection
Stage 3: Wealth
DistributionStage 2: Wealth Accumulation
© Family Economics & Financial Education – May 2010 – Introduction to Finance Unit – Life Cycle of Financial Planning – Slide # 9
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.11.2.G1
An Individual’s Financial Life Cycle
Stage 2: Wealth AccumulationIn this stage, the household head has reached peak earning years, is accumulating wealth, and approaching retirement.
Stage 3: Wealth DistributionThis stage involves the consumption of wealth, usually during retirement
© Family Economics & Financial Education – May 2010 – Introduction to Finance Unit – Life Cycle of Financial Planning – Slide # 10
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.11.2.G1
Personal Financial Management Pyramid
Risk and Tax Management:goal setting, insurance, protection
against economic loss, income tax reduction
Building Long Term Wealth:
goal setting, retirement
planning, investments
Cash Management: goal setting, emergency, cash reserve, record
keeping, spending plans, net worth, and income-expense statements
EstatePlannin
g
Credit and Debt Management: goal setting, credit use, avoiding credit abuse,
debt reduction
Building Financial Security: goal setting, savings plan, home ownership, children’s
education
Wealth Distribution‘giving it to your
chosen ones’Wealth
Accumulation‘giving it to yourself’
Basic Wealth
Protection
‘quit giving it to others’
© Family Economics & Financial Education – May 2010 – Introduction to Finance Unit – Life Cycle of Financial Planning – Slide # 11
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.11.2.G1
Life Cycle Events Activity
• People in certain age groups tend to have similar life cycle needs
• What activities and events require financial planning during each stage?– High School Ages 13-17– Young Adult Ages 18-24– Adult With or Without Children Ages 25-34 – Working Parent or Adult Ages 35-44 – Midlife Ages 45-54 – Pre-Retirement Ages 55-64 – Retired Ages 65 and older
Identify someone you
know in each
category
© Family Economics & Financial Education – May 2010 – Introduction to Finance Unit – Life Cycle of Financial Planning – Slide # 12
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.11.2.G1
Traditional Age Group Financial Planning Needs
• High School Ages 13 – 17– Developing a plan for eventual
independence– Preparing for career– Evaluating future financial
needs and resources– Exploring financial systems –
banks, etc.– Developing a personal system
of record keeping
© Family Economics & Financial Education – May 2010 – Introduction to Finance Unit – Life Cycle of Financial Planning – Slide # 13
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.11.2.G1
Traditional Age Group Financial Planning Needs
• Young Adult Ages 18 – 24– Establishing a household– Training for a career– Earning financial independence– Determining insurance needs– Establishing credit– Establishing savings– Creating a spending plan– Developing a personal financial identity– Developing a personal financial system
© Family Economics & Financial Education – May 2010 – Introduction to Finance Unit – Life Cycle of Financial Planning – Slide # 14
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.11.2.G1
Traditional Age Group Financial Planning Needs
• Adult With or Without Children Ages 25 – 34– Child-bearing– Child-raising– Starting an education fund for children– Expanding career goals– Managing increased need for credit– Discussing and managing additional
insurance needs– Creating a will– Maximizing financial management by
all members of household
© Family Economics & Financial Education – May 2010 – Introduction to Finance Unit – Life Cycle of Financial Planning – Slide # 15
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.11.2.G1
Traditional Age Group Financial Planning Needs
• Working Adult or Parent Ages 35 – 44– Upgrading career training– Building on children’s education
fund– Developing protection needs for
head-of-household– Need for greater income due to
expanding needs– Establishing retirement goals
© Family Economics & Financial Education – May 2010 – Introduction to Finance Unit – Life Cycle of Financial Planning – Slide # 16
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.11.2.G1
Traditional Age Group Financial Planning Needs
• Midlife Ages 45 – 54– Assisting with higher
education for children– Investing– Updating retirement plans– Developing estate plans
© Family Economics & Financial Education – May 2010 – Introduction to Finance Unit – Life Cycle of Financial Planning – Slide # 17
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.11.2.G1
Traditional Age Group Financial Planning Needs
• Pre-Retirement Ages 55 – 64– Consolidating assets– Planning future security– Re-evaluating property transfer– Investigating retirement part-time income
or volunteer work– Evaluating expenses for retirement and
current housing–Meeting responsibilities of ageing parents
© Family Economics & Financial Education – May 2010 – Introduction to Finance Unit – Life Cycle of Financial Planning – Slide # 18
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.11.2.G1
Traditional Age Group Financial Planning Needs
• Retired Ages 65 and older– Re-evaluating and adjusting living
conditions and spending as related to health and income
– Adjusting insurance programs for increasing risks
– Acquiring assistance in management of personal and financial affairs
– Finalizing estate plan– Finalizing will or letter of last
instructions
© Family Economics & Financial Education – May 2010 – Introduction to Finance Unit – Life Cycle of Financial Planning – Slide # 19
Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona
1.11.2.G1
True or False?
Everyone has the same financial
plan.