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Tuesday, October 2, 2012

University Teaches Personal Finance

BYU teaches a personal finance course. Here are some tips on understanding your personal finance plan.

Understand The Requirements for Your Personal Financial Plan

Your Personal Financial Plan (PFP) is a document that accounts for all critical areas of your personal financial life. It is your individual and personal roadmap for achieving your personal and family goals... It requires you to think through what you want, determine where you are now, set goals for where you want to be, develop a plan to get you there, and then implement and revise the plan as needed.
I recommend a six-step process in putting together your Personal Financial Plan:

Step 1: Decide What You Want
Deciding what you want establishes what is important to you. It expresses your core values and beliefs. Think through the things that you need to decide. What is truly important to you? What do you feel Heavenly Father wants you to do or be? How would you like to be remembered when you leave this life? What do you want to accomplish with your life? These are probably the most important questions you will ever ask and answer.

Step 2: Evaluate Your Financial Health
Evaluating your financial health helps you determine where you are financially. When I graduated from college, I was scared to balance my checkbook because I thought I would find out how bad of shape I was in financially. But it is a critical part of your financial plan. If you don't know where you are, how can you determine how to get to where you need to be? To evaluate your financial health, develop a balance sheet, income statement, and budget, and calculate your financial ratios. Determine where you are financially right now. Are you financially healthy? Are you solvent (which means do you have sufficient cash in your wallet or in your checking account to pay your bills)? How much debt do you have? How much are you saving each month and year?

Step 3: Define your Personal and Financial Goals
Once you know what is important to you and where you are financially, it is critical to define your personal goals. You will achieve what you set your mind to; you will hit what you aim for; you will accomplish the goals that are important to you.
Write your goals down. Attach a cost to each goal. Remember that there are more costs than just financial costs. What are the true costs of your goals, in terms of time, money, and effort?
It is also important to determine potential obstacles. By identifying the obstacles early in the analysis, you increase your ability to plan for and to avoid or overcome those obstacles.
Set a date for when your goals are to be completed. By when or in what time-frame can the goal be reasonably accomplished? Make your goals SMART: Specific, measurable, achievable, reportable, and time-bound. Then share them with others.

Step 4: Develop a Plan of Action
Know what you should work on and when. Your plan should be:
  • Flexible—It should be able to change as your situation in life changes.
  • Liquid—It should have the ability to convert non-cash assets into cash with relative ease and without excessive costs.
  • Protective—It should be able to meet unexpected large expenses without difficulty for the inevitable challenges that will come.
  • Tax efficient—It should pay Uncle Sam all that is owed and not a penny more.
Think long-term, and consider future needs. Develop a spending plan (also called a budget), and use it wisely. Plan for big-ticket purchases, such as houses and cars. Plan for managing debt and remember that "debt is the enemy to growth." Plan for insurance and protect yourself. Determine and write your investment plan and investment strategies and follow that plan. Plan for the expenses of children, missions, and college. Plan for retirement and your later years. Most importly, plan your financial future early; then live your plan.

Step 5: Implement Your Plan
Once you have your plan, implement it. Use common sense and moderation in the things you do. Set wise goals and work toward them each day.
Use wisdom in your plan, and stay positive. Remember that your plan is a goal to set your sights on, not a stick to beat yourself with. Realize that detours will come, but stay on track after the detours. We all encounter detours, but good things come to those who hang in there!

Step 6: Revise Your Plan as Necessary
Revision is an important part of your plan. Remember that people and goals changeyou need to account for this. Review your goals annually at a minimum, and make sure your plan still matches your goals. If necessary, fine tune your plan. Remember your plan is etched in paper, not in stone.
Much of your plan is personal and challenging as you try to understand yourself, your family, and the things you want to accomplish. The purpose of this website is to help you identify critical areas and make important decisions. In this section, we will work on Steps 1- 4:
Step 1: Decide what you want out of life.
Step 2: Evaluate your financial health.
Step 3: Define your personal and financial goals.
Step 4: Develop a plan of action and start living your plan today.
 
To read more about BYU's Finance Course and get free helpful tips click here

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