ASSIGNMENT OBJECTIVES
Benefits of a Plan
A financial plan can be a positive force that helps strengthen personal relationships as people work together to achieve goals. A financial plan helps people
Education, Income and Employer-Provided Benefits
The odds are against winning the lottery or inheriting great wealth. So the primary source of funds for most people is income from employment. On average, the higher your educational level, the higher your annual income and overall lifetime income will be.
A steady job builds financial security, while unemployment can play havoc with financial well-being. People with job skills that are in high demand are less likely to be unemployed. In addition, these people have the choice of jobs that offer a favorable package of income and benefits.
Many employers provide their workers' benefits that would be expensive if purchased by individuals. A few years ago, employee benefits left little opportunity for individual choice. Today, employers offer many options. For example, several different health insurance plans may be available to the employee.
Some employers contribute to employee savings and investment programs. For example, a company may contribute 50 cents for every dollar the employee saves or invests in company-approved plans.
A Plan to Reach Financial Goals
Savings are an essential ingredient in everyone’s financial plan. Whether your financial goals are longer range—establishing a business or buying a home—or shorter-term goals like putting a down payment on a car, saving is the way to reach your objective. Once you get into the habit of putting money away instead of spending it, you’ll be surprised at how gratifying it is to watch your savings grow.
Developing a Financial Plan
An effective financial plan involves information gathering, decision making, action and evaluation. Steps in the financial planning process include
Questions people may ask while designing their financial plan include
Figure Net Worth
Once you are earning a living, you should prepare a net worth statement once a year. This will enable you to compare your annual net worth statements and, if necessary, modify your financial behavior or your goals to meet your changing financial situation.
A net worth statement, sometimes called a balance sheet, is a comparison of what you own and what you owe. It is like a photograph of your financial condition at a specific time.
To figure your net worth, list all of the things you own (assets), then list money owed to others (liabilities). Total your assets and your liabilities, then subtract your total liabilities from your total assets. Do you have a positive or a negative net worth?
Being Smart About Credit
More and more high school and college students are using credit cards. Credit is important because it shows merchants, banks, employers and landlords how reliable you are when it comes to debt repayment. A bad credit history can make it tough to buy a house, a new car or the furniture for a new apartment.
Fewer than 40 percent of American credit card holders pay the entire balance they owe each month. When they sign the credit application they agree to pay interest on the balance owed. If you use a credit card that charges 18 percent interest and you do not pay the entire balance each month, you are adding 18 percent to the cost of the items you buy.
If you only make the minimum payment on your credit card, it can take ten to twenty years to pay off a purchase. In the meantime, the interest you pay may add up to more than the cost of the original purchase!
Credit is a powerful personal finance tool that can make it possible to get your first car and a home mortgage. Smart use of credit means avoiding the trap of using credit cards indiscriminately to simply acquire more things. Ask yourself:
Allocate Savings to Reach Goals
Financial advisors often suggest that you pay yourself first. That is, establish a set amount to save each payday and put it in savings rather than spending the money on current consumption. The habit of saving regularly for future goals is a powerful financial tool, even if the amount saved each payday is small. People living at low income levels may find it difficult to save money because current income is needed for current living expenses, but even a few dollars a month can grow and contribute to financial security.
Insurance
Common types of insurance include life, disability, property and liability insurance. A reputable insurance agent can help determine how much and what type of insurance is needed. When should you purchase insurance?
FINANCIAL TASKS OF YOUNG ADULTS
KEYS TO CREDIT SUCCESS
PLEASE DO THE FOLLOWING ASSIGNMENTS:
WHEN YOU HAVE FINISHED THESE ASSIGNMENTS, PLEASE REREAD THE LESSON. THEN CONTINUE WITH LESSON TWO.