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Personal Finance

Course Overview

MBA. Juan Jos Salas M.

Mxico 2009


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Course Overview

Give you the skills to responsibly manage your

money

Today, personal bankruptcies are out of control

Personal Debt is at an all-time high

Give you perspective on how money and work

should affect your life

People are more than just their jobs and possessions


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Course Overview

Main Topics

Your Goals in Life

Setting Financial Goals Maximizing Income

Minimizing Expenses

Maximizing Assets

Minimizing Liabilities

A Planning Approach

Determining Net Worth

Reflecting on what it all means


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Your Goals in Life

Nonfinancial goals

Family, children, education, religious, social, etc.

Finances can affect your ability to attain these goals.

Financial goals

Financial independence is an important goal for manypeople. Financial independence is defined as havingenough income or resources to be self-reliant.

One of the financial choices that we make is betweenconsumption today versus consumption in the future.


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Your Goals in Life

Researchers have found that most people, regardlessof their income level, feel that they need 20% morewealth than they currently have.


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Setting Financial Goals

If you dontknow where your going, it doesnt

matter which way you go

Cheshire Cat from Alice In Wonderland

Set up a process now to set goals

Then review them at least annually to see if youare where you want to be


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Maximizing Income

You only have so much time on earth, you

should make the most of every moment.

However, you need to balance your needs

against the needs of others

Your retirement age and income depend on howwell you do


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Minimizing Expenses

If you spend more than you make, then you will

end up in debt.

This seems so simple

So why are so many Americans on the verge of

bankruptcy? We have to learn how to control our spending


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Maximizing Assets

In todays world you have to be able to take

care of your own investments

Very few people will receive pensions where

their employers make all their investment

decisions for them

You will probably have to make your own

investment decisions


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Minimizing Liabilities

There is good debt and bad debt

Taking out loans to buy things that increase in value

(like a house) or will let you earn more income (like

an education loan) creates good debt

Taking out a loan to pay for vacations or stereos

creates bad debt

You also need to know the basics of insurance so

unexpected events do not drive you into bankruptcy


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Major Financial Planning Areas

Consumption and Savings Planning

Debt Planning

Insurance Planning

Investment Planning

Retirement Planning

Estate Planning

Income Tax Planning

Career Planning


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A planning approach

Step 1. Determine concrete goals. First state your broad goal such as the purchase of a

home. Determine the specific pieces to achieve that goal such

as the cost of the house, the down payment amount, etc.

Step 2. Create an action plan. How will you achieve the goals stated in step 1? Howmuch will you save each month and where will the

money be invested?


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A planning approach

Step 3. Evaluate performance. At least annually, evaluate steps 1 and 2 to determine if

any adjustments should be made in the action plan orgoals.

Step 4. Decide on a future course of action.

Is your goal realistic or should it be reevaluated?


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Life-Cycle Financial Planning

Life-Cycle Phases Financial Planning Areas

Young adult (1825) Consumption and savings; career

Family formation (2635) Consumption and savings; career;

debt; insurance; income taxes

Family development (3649) Investment; retirement; income

taxes

Family maturity (5060) Investment; retirement; estate

Retirement (60?) Estate; income taxes

(assumes children/marriage)


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Determining Net Worth

Net Worth = AssetsLiabilities

If you have more assets than liabilities, then you

have a positive net worth If you have more liabilities than assets, then you are

in debt

When your income is greater than your

expenses you add to your net worth Vice versa when your expenses exceed your income

We need to remind ourselves that financial net

worth is not the same as your actual net worth


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Reflecting on what it all means

We should never lose track of the fact that

personal finance is just a means to an end

Who we are as a person is not measured by our

income or our balance sheet


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Discussion Questions

What are some of the benefits of personal financialplanning?

How do economic cycles affect the personal

financial planning process? What is meant by life-cycle financial planning?

Explain marginal analysis and its importance tofinancial decision making.

Opportunity cost is a very important concept infinancial decision making. Can you think of anexample of opportunity cost in your financial

planning?


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Please contact:

MBA. Juan Jos Salas M.

[email protected]

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