Textbook Notes (368,123)
Canada (161,661)
Finance (362)
FIN 502 (69)
Joan Lobo (33)
Chapter 3

CFIN502- Chapter 3- Setting goals and the financial planning process.docx

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FIN 502
Joan Lobo

CFIN502- Chapter 3- Setting Goals And The Financial Planning Process DESIRES AND GOALS  Individuals often come up with a list of desires—too vague and there are no deadlines for their completion  Financial goal 2 attributes o Goals outcome can be measured precisely in dollars o There is a deadline for completion o E.g. ‘I want to be rich’  ‘I want to have a $1 million in 10 years’  How to set financial goals o Brainstorm—write down all desires and goals in your financial affairs  Goals—short term and long term o Estimate each item carefully and convert every desire into a financial goal  End—list of goals only—expressed in dollar amounts and a time for completion  The fundamental financial goals o Goals that families set—translated into the goal of achieving specific amount of money by a certain date o Goal for retirement—present value of the desired level of consumption form the date of retirement to the expected date of death THE FINANCIAL PLANNING PROCESS  Majority of people never achieve their goals o They fail to plan o Even if people do plan, they do not take action  Financial planning process- system of setting goals, devising action plans, and monitoring progress 1. Goal setting  Reach goal—invest money in right investment 2. Action plan  Happy with the risk involved  Cannot find an investment that can generate such a high return  Find some investments that are expected to generate the required rate of return 3. Take action 4. Feedback (monitoring progress)  Formal model for analysis o ∑ o Sum of the annual savings (E -C )—invested and compounded t t o Compounding period for the annual savings—(n-t)  Shorter and shorter period of compounding as you approach the time of the goal o Payments or consumption expenditures occur at year-end  ∑ o Goal setting and financial planning is a dynamic process that requires necessary changes to adjust to the ever changing economic circumstances  Changes in needs of the individual as they goes through the different stages of the life cycle  Priority or ranking of goals o Balance between LT and ST goals with estimated cost of each o ST goals—cost is simply the intended saving or the price of an asset o LT goals—use financial model of analyses and equation  Estimate cost of goal—lump sum, series of future investments, or co
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