Lecture 6-Personal Financial Planning (Chapter 1) - YouTube

>> Alright, welcome to the first part of the class.

Hopefully you've already watched the intro.

You've been through the entire website, both the

Connect website and also the Blackboard website.

The general lectures I want you to know one thing; they're kind of short overviews

to help supplement what you're already doing.

These lectures do not replace reading the book

and they certainly don't replace coming to class if you're in the traditional class.

But, we're going to get going here with our financial planning and action.

Alright, first off when we think of personal financial planning it's a process

that we're going to go through to managing our money to try to achieve the

greatest satisfaction we can out of our money.

So, in other words we want to try to determine what makes us happy.

If a brand new car does not make you happy then you are wasting money on a brand new

car.

You want to travel, go to sporting events, go to concerts then spend your money on that.

If you really, really love new cars and you want a new car every three years and that

brings you a lot of satisfaction then buy a new car every three years, but

you won't be able to do as much going to concerts, travel, etc., okay.

So, when we look at a financial plan, your financial plan is kind of a noun.

The financial plan is going to be a typed report that you turn in.

Financial planning is the verb and the actions that you have to take to create the plan itself.

So, what is a financial plan?

Well, it's a formalized report, alright.

We're going to have a structure to it.

We're going to start off going over your goals.

We're going to look at your income sheets, balance statements and then we're going to

do some projections, where are we going to be a year from now, three years from now,

five years now and where do we want to be when we retire, alright.

So, we certainly have to summarize our current financial position.

We also have to look at our needs.

Are we going to school?

Do you plan on buying a big house and how are you going to fund that?

Are you going to put your kids through school?

Are you going to take off for a year after college and go backpack through Europe?

Pretty much if you look at anything that's going

to happen in your life for the positive it has to be planned for and it has to be paid

for whether that's a wedding, whether that's paying

for school, whether that's braces for your kids or a new car, all those things need to

be planned for and they also need to be paid for.

So, what are some advantages here to financial planning?

Well, first we want to have increased effectiveness in obtaining and using resources.

So, what does that basically mean?

Spend smart.

Figure out what I want, figure out what the really good deals are and then

spend my money that way.

I have a cousin, she loves to travel and she travels all over the world.

She's been to Africa five or six times.

That's everything to her.

She lives in an incredibly small little apartment in a not so good part

of the neighborhood.

She doesn't own a car.

If she owns a car usually it's been given to her and she drives it for five-six months

until it breaks down and then she gives it to

somebody else because all of her money goes into travel and that's what

brings her the best satisfaction.

And so, when she's doing planning, she's trying to figure out how can

I get the best deals on travel?

We also want you to have increased control of your financial affairs.

So, we want to set this up so that life doesn't happen to you.

You're not sitting around in a passive situation where you get in this money and

there's this much demand for your money and you're somehow a victim in everything

that happens to you and everything happens by happenstance.

We don't want that.

That is not a fun position to be in to know that you're one paycheck away from

being moved out, to think you have no control.

So, part of this class is going to be that we want you to seize control of your assets.

How much money are you going to make?

How are you going to spend that money and then make active decisions?

And one of the things that comes out of that is

an awful lot of improved personal relationships because money problems are incredibly stressful.

They just are.

If you look at divorce rates, for people married for seven years or less, finances

are the number one reason stated for divorce.

After seven years it becomes the number two reason stated for divorce.

And so, certainly if we want improved relationships with our family, we want improved

relationships with our spouse, with our kids, we want to

be in control of our finances.

We want to be like on a dog choke collar with our finances pulling us around.

That does not make for a happy life.

And one of the greatest things I hope you get out of this class in planning

your finances is a sense of freedom.

In other words, I don't have to worry about all of this, because it's all taken care of.

You find out you're much, much more satisfied with a low mileage used certified car and

a house in a nice neighborhood and no financial worries instead of a brand

new leased car and a house in a neighborhood you can't afford.

And you know that every single month that goes by you're barely going to make it and

if you get fired you're going to lose your house.

One of the greatest satisfactions for me is to

know that if my dean walked through the door over there and fired me, well first I've got

tenure, so I would go yelling to my union.

But, most people if they're in that situation they're in trouble.

How are they going to make rent this month and certainly next month?

It is very satisfying to know that if I got fired I wouldn't have to worry about

losing my house for over a year.

Certainly I'd probably cut back on cable.

I certainly wouldn't be eating out nearly as much.

But, that huge horrendous weight is lifted and

I've got a lot of friends especially coming through the financial crisis

that we you know came through a little while ago,

their life is not fun.

Even when they're making 150,000-200,000-300,000 dollars a year they spend every penny of it.

They play hard.

They spend hard and next thing you know there's one little hiccup in their business

or they don't get their big bonus check and ends up they can't make it, alright.

So, that happens at all income levels.

So, what are the things that we're going to try to accomplish here?

First off we went to look at our individual life situation and our personal values, because

personal finance is personal.

So, you know what do you value?

Do you value family?

Do you want to spend a lot of time with family?

Do you want to go on vacations with family?

Are you going to tithe to the church?

Are you going to do a lot of volunteer work?

And so, we want to get to your core values and that has to be part of this overall plan

and certainly plays a large impact in our finances.

We also want to at least know what's going on in the economy.

Now, as an individual really not much I can do about the economy.

The economy's going to go up.

It's going to go down.

It's going to go up.

It's going to go down.

I have zero influence on the worldwide economy or the national economy.

However, I can set myself up for success if the economy does well and I can

limit my downside if the economy does poorly.

So, we want to understand how those things work.

How-- you know how does outsourcing affect my job?

How does inflation affect my job?

How are interest rates going to impact me if I need to refinance my house?

When we look at interest rates, interest rates basically are the cost of money.

If you go to borrow money you're charged interest.

The higher the interest rate the higher the charges and there's a lot factors that go

into interest rates and we'll certainly be coming back to that.

Alright, one of the things I want to touch on here is about inflation.

Inflation impacts all of our lives and actually a little bit of inflation

is a really good thing.

We want a little bit of inflation in the economy.

That means there's demand for money.

Prices are going up and what happens with inflation is it actually

reduces your buying power.

So, let's say that a candy bar costs a dollar.

And so, here I have my candy bar and I have a dollar.

I can do one of two things.

I can buy that candy bar now and have it now or I can save that dollar.

If there's no inflation whatsoever I can take my dollar, I can stick it under a mattress,

wait a year, pull that dollar back out from under the mattress and buy the same candy

bar.

However, with inflation, if inflation's running three percent and my candy

bar costs a dollar this year, next year it's going to be three percent higher.

It's going to cost a dollar three.

So, if I take my dollar and I hide it under the mattress when I pull it out a year from

now I can no longer buy a candy bar.

So, what that does is it forces me to take that

dollar and put it in the bank to get interest, to invest in bonds, to invest in stocks.

So, instead of the United States having a whole

ton of money stuffed under a mattress somewhere in thousands and millions of homes it pulls

all that money out from under the mattress into the banking system so it can be loaned

out to other people to buy cars, expand businesses,

start new businesses, etc., etc. and then hopefully I get more than just inflation

return on my money.

Certainly when we look at inflation if you have a fixed income it can be devastating.

And so, we need to realize that and plan for that as part of our financial planning.

If we hit 65 or 67 and retire on a fixed income that money's probably not going to

satisfy what we need 30 years from now when we're 95-97 years old.

And if right now you're in your 20's a very good chance you'll live past 100.

Given all the new technology, given all the new

medications, given some of the breakthroughs in growing new kidneys, trying to grow parts

of pancreases, we're living longer and longer and so our retirement at the

same time is going to be longer and longer and we have to account for that.

The most common measure when they talk about inflation, they talk about

the CPI, the Consumer Price Index.

So, the Consumer Price Index is basically just a big basket of items, right.

It involves a house, a car, lettuce, peanut butter, hamburger, gasoline, bananas; there's

hundreds of items in this like huge basket.

And the government goes out and each month, each

week they track how much all those items cost and then they see did the

items go up or down in general?

And if prices are going up then we have inflation and then they report

an uptick in inflation.

Okay, the last thing we're going to cover in this chapter is goal setting.

To do a good financial plan you've got to have goals.

For a business, a business has to have goals if it's going to be successful.

And so, here's a few things of what effective goals should be.

They need to be realistic.

That does not mean that of all your goals you're not dreaming, alright.

So, if you're a musician or an actor and you want to perform live and you love stage

and you want to win a Tony there is absolutely nothing wrong with one of your goals being

to win a Tony Award, to win some other award to travel Europe and play.

That's fine.

But, an awful lot of them need to be realistic.

You can't say okay next year I'm going to make a million dollars a year and

then set all your plans you're going to make a million dollars a year

unless realistically there's a pathway for you to make a million dollars.

When we talk about realistic goals, for your project you have to have 50 goals.

And so, by realistic but yet we still have to reach and challenge ourselves.

If you set 50 goals and only attain 10 of them I would say your goals are too hard or

you had a really, really bad year.

Simultaneously, if you have 50 goals and you obtain all 50 of your goals

there's a problem with that.

Odds are you set your goals way to low or maybe for some reason you had a super

phenomenal year and actually finished them.

In my opinion you should probably be completing around 80 percent of your goals.

So, if you have 50 goals set up you should be accomplishing about 40 of them and

in that way they're probably realistic and yet still obtainable.

We also need our goals to be specific and measureable.

One of the most common goals that I get is I want to spend more time with family.

Okay, what does that mean?

One extra minute a year with family, talking on the phone, you know what

is that and how do I measure it?

It's very hard to measure more time or I want to be a better student.

How do I measure a better student?

It's not I want to be a better student.

It's I want to have a GPA of 3.5 this year.

That I can measure.

I want to go out once a week with my sister to lunch.

That's measureable.

So, you look back and say okay out of the 52 weeks we went out 48 times to lunch or

we did this X number of times.

The other that I see is the statement I want to pay down my debt.

Well, what does pay down your debt mean?

Does it mean you owe 10,000 dollars and five years from now you owe 9999 dollars because

that's paying down your debt?

No, we want it to be specific, measureable and certainly time driven.

I want to pay down my 10,000 dollar credit card bill from 10,000 dollars to 5,000 dollars

by the end of this year and have the entire balance paid off in two years.

That's both specific, my credit card bill.

It's time driven.

I've got my certain times and I've also stated exactly what's going to happen there.

The other thing that we need our goals to be is action oriented.

So in other words, these goals have to be set up

for you to take action and you influence them.

You influence your income.

You influence your GPA.

Whether you're a Laker fan or not odds are you're not going to have too much influence

on whether they win a world championship next year.

Odds are they're not unfortunately, but you cannot set a goal that says I want

the Lakers to win the world championship.

There's no action that you're going to take to make that happen even though

you think buying a seat and cheering really loud is going to get them

to do it, odds are that's not going to happen.

Alright, so that's the end of our goals here for your project.

You can look in your book.

It talks about that you need to develop 50 goals

and they need to be specific and time driven.

Alright, and that's all we're going to cover here for chapter one.

Thank you.