Personal Finance

Course Overview

MBA. Juan Jos Salas M.

Mxico 2009

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

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

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 many people. Financial independence is defined as having enough income or resources to be self-reliant. One of the financial choices that we make is between consumption today versus consumption in the future.

Your Goals in Life

Researchers have found that most people, regardless of their income level, feel that they need 20% more wealth than they currently have.

Setting Financial Goals

If you dont know 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 you

are where you want to be

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 how

well you do

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

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

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

Major Financial Planning Areas

Consumption and Savings Planning Debt Planning Insurance Planning Investment Planning Retirement Planning Estate Planning Income Tax Planning Career Planning

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? How much will you save each month and where will the money be invested?

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 or goals.

Step 4. Decide on a future course of action.

Is your goal realistic or should it be reevaluated?

Life-Cycle Financial Planning

Life-Cycle Phases Young adult (1825) Family formation (2635) Financial Planning Areas Consumption and savings; career 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)

Determining Net Worth

Net Worth = Assets Liabilities
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

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

Discussion Questions
What are some of the benefits of personal financial planning? How do economic cycles affect the personal financial planning process? What is meant by life-cycle financial planning? Explain marginal analysis and its importance to financial decision making. Opportunity cost is a very important concept in financial decision making. Can you think of an example of opportunity cost in your financial planning?

Please contact:

MBA. Juan Jos Salas M. sjuan@itesm.mx