What Is Financial Planning - Financial Literacy - أول ثانوي

3.4 What Is Financial Planning? Link to digital lesson Learning Objective Once you have completed this lesson, you should be able to: ⚫ explain the purpose of a financial plan identify the steps involved in creating a financial plan. www.lem.edu.sa Key Terms Financial plan Intermediate goals Personal goals Long-term goals Financial goals Pension Short-term goals Timeline Financial Planning Financial planning is a formal, medium to long-term process that in- volves carefully examining your current financial situation and thinking about your future. Unlike budgeting, it requires a long-term commit- ment. As part of the financial planning process, you will create a finan- cial plan. The first element of creating a financial plan is to set your personal goals, which could include: getting a college education starting a business ⚫ owning a car owning a home. For each personal goal, you will have a related financial goal. For college education, you might need to pay for: Financial plan a set of personal and financial goals, along with steps and a timeline for reaching them Personal goals things you want to achieve in your life Financial goals plans for how you will pay for your personal goals وزارة التعليم (173-1465 wenses tuition" CHAPTER Saving 99

What are your personal goals? books other related expenses. When starting a business, you might need to pay for: ⚫ business expenses (software, equipment, advertising, etc.) incorporation or government fees taxes. To own a car or a home, you would need to: save for a down payment on a car or a house - have a job that provides enough income to make monthly payments. Budgets and financial plans go hand in hand. However, they are not the same. A financial plan is more than a budget. Its purpose is to plan for earning, spending, saving, and investing in a way that will allow you to achieve your goals in the present and the future. By creating a financial plan, you are assuming personal responsi- bility for your financial health. Some people create a financial plan by themselves because their finances are not complex enough to require assistance. وزارة التعليم List of Educ 100445

Other people get advice from experts who can help manage resources and plan for retirement. Whether you plan by yourself or get advice, you will need to complete the five steps of financial planning. These are: 1. Gather information. 2. Analyze information. 3. Set goals. 4. Develop a timeline and targets. 5. Implement and evaluate the plan. Step 1: Gather Information The first step in financial planning is to gather information. Everything related to your finances should be considered. The purpose of gath- ering information is to look at the state of your finances now - your starting point. The following list shows examples of financial records or documents that are used to assess your finances. You may not have all the items listed at this time in your life. However, items like these may become part of your plan later in life: personal budget current bank statements ⚫ • investment account statements ⚫ financial contracts for items purchased on credit any other legal documents related to your finances. Step 2: Analyze Information Take a careful look at the documents and information you have gath- ered. ⚫ Find out if any data is missing and take steps to get the data. ⚫ Review your current sources of income (cash inflows). Look at your expenses (cash outflows). Do you have enough income to pay for your expenses and save for the future? If not, try to find ways to increase income and/or decrease expenses. Review a current monthly or yearly budget. Analyze your expenditure. Do you earn enough to have a positive lifestyle? ?Do you need to spend less and save more وزارة التعليم 24123-1465 CHAPTER Saving 101

Step 3: Set Goals Two types of goals should be considered when creating a financial plan: personal goals and financial goals. ⚫ Personal goals should be set first because your financial goals will be based on them. Living in your own apartment, owning a car, and taking a two-week vacation are personal goals. ⚫ Financial goals may be short-term, intermediate, or long-term and describe how you will pay for your personal goals. A financial plan with short-term goals tells you on a week-to-week or month-to-month basis what you would like to achieve, such as: Short-term goals things you expect to achieve within one week to one year ⚫ saving SAR 400 by the end of the month ⚫ purchasing a new smart phone or tablet. Using monthly and yearly budgets can help you set short-term goals which are realistic and achievable, and can be used to motivate you. Your financial plan may also include targets that are not short-term but need to be planned for in the near future. These intermediate goals might be: Inedits goals ⚫ saving money for college things you wish to achieve in ⚫ buying your first car the next two to five years Long-term goals things you want to achieve more than five years from now ⚫paying for your first international vacation ⚫increasing your yearly income. These intermediate goals take longer to achieve and also require more planning as it can be difficult to save for something that is not immediate. Short-term and intermediate-term goals are often stepping stones to long-term goals. When you begin working full time, you may begin to think about things that could help you have a better future, such as: • saving for a private pension, in addition to the mandatory public pension so you can have a comfortable old age ⚫ saving money for your children's future, including education Pension a regular Incore paid to people over the retirement age. ⚫ paying off your mortgage as soon as possible. وزارة التعليم 102 Financial Literacy

LOOKING AHEAD What long term goals do you have? Achieving long-term goals may require you to save money for a long time. As part of the goal-setting process, you may experience delayed gratification. Doing without an item you would like to buy now in order to save money to fulfil an intermediate or a long-term goal is an exam- ple of delayed gratification. You may have a goal of saving SAR 600 per month to help pay for your college education. This month, you would like to buy a new pair of shoes. However, if you do so, you will not be able to make your savings goal. Doing without the shoes now in order to be able to pay for college later is an example of delayed gratification. Step 4: Develop a Timeline and Targets Goals must be measurable which means you must plan a timeline for putting your goals into action. A timeline is a visual display of how long it will take to achieve each phase of your plan. Before creating a time- line, be sure your goals are prioritized based on how soon you need or want to achieve them. For each personal goal, there may be a financial goal you must first achieve. Financial goals can further be divided into parts or steps. For each step, consider: how long it will take to complete ⚫ a target date for completion targets for your goals. Targets may consist of steps or specific actions to take. As you hit each target, you will be another step closer to achieving your overall goal. The record showing the goals you intend to accomplish with timelines and targets is your financial plan. A sample financial plan for one goal is shown in Figure 3.4.1. Timeline a visual display of how long it will take to achieve each phase of a plan وزارة التعليم 0123-1445 CHAPTER 3 Saving 103

FIGURE 3.4.1 A Financial Plan One Goal) وزارة التعليم 104 Financial Literacy Step 5: Implement and Evaluate the Plan Once you have decided on your personal and financial goals, begin working toward achieving them. Check off the items on your timeline as they are completed. Set new targets if you learn about other ways to meet your goals. Most importantly, look at your financial plan regu- larly. At least once each year, you should evaluate the financial plan and revise it as needed. FINANCIAL PLAN Updated April 1, 20XX Personal Goal Financial Targets Goal Have my Buy a car 1. Save money for a own car Timeline 5 years down payment (SAR 12,000) Set aside SAR 200 per month Open a separate account for money saved 2. Get a job that Once per month Schedule for April 15 2 years provides enough income to make monthly payments In doing so, consider the following questions. Some of them may apply now. Others may not apply to you for a few, or many, years. • • Is your income steadily growing over time? If so, by what amount and percentage? How are your spending habits changing? What types of things are you buying (needs versus wants), and what are your purchas- ing plans over time? Who else depends on your income? What will they contribute? What needs will they have?

What new goals do you need to add and plan for? Do you need a plan to pay for a college education? Is it time to plan for retirement? As your personal and family goals change, your financial plan should be updated to reflect new goals. Review Questions Choose the correct answer. 1. Financial planning requires a short-term commitment. a. true b. false 2. Which of the following is NOT an example of a personal goal? a. getting a college education b. owning a car c. owning a home d. paying for tuition 3. Which of the following is NOT an intermediate financial goal? a. purchasing a new phone b. saving money for college c. paying for a first international holiday d. increasing annual income 4. A target is a visual display of how long it will take to achieve each phase of a plan. a. true b. false وزارة التعليم 0127-1465 CHAPTER 3 Saving 105