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Understanding the Financial Planning Process. #1. 1. Define Personal Financial Planning. . Personal Financial Planning. S ystematic process that considers important elements of an individual’s financial affairs in order to fulfill financial goals.

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personal financial planning
Personal Financial Planning

Systematic process that considers important elements of an individual’s financial affairs in order to fulfill financial goals

the role of money
The Role of Money

Medium of exchangeused to measure value

Utility amount of satisfaction derived from purchases versus cost

Link to personal psychological concepts and key role in personal relationships

putting target dates on financial goals
Putting Target Dates on Financial Goals

Long-term 6 years or more

Intermediate-termthe next 2-5 years

Short-termin the next year

from goals to plans a lifetime of planning
From Goals to Plans:A Lifetime of Planning

Early childhood

High school and college

Family formation

Career development



the players
The Players

Financial planning environment contains various interrelated groups of players, each fulfilling certain goals.


Federal government plays a major role in regulating the level of economic activity

Taxation and regulation constrain personal financial planning

the economy
The Economy

Monetary Policy

Controls money supply

Used to stimulate or contract economic growth

Fiscal Policy

Controls levels of taxation

Sets levels of government spending

the economy21
The Economy

Economic Cycles

Stages related to employment and production levels

Growth measured by changes in GDP


Measured by changes in CPI

Affects purchasing power and interest rates

Affects financial plans and goals

exhibit 1 7 the business cycle
Exhibit 1.7: The Business Cycle

The business cycle consists of four stages: expansion, peak, contraction, and trough

what determines your personal income
What Determines Your Personal Income?

Demographics and income

Age, marital status


Where you live