The Financial Planning Process - Coursework Example

This chapter is the foundation of the remaining chapters.  The chapter sets out five steps essential for planning and the rest of the chapters explain in detail the concepts required to accomplish those five steps.  This chapter helped me understand the importance and purpose of financial planning.  I got an overall idea of what financial planning is about and what to expect out of it.  It helped me take up the initiative to begin planning. 

The worksheets helped me understand my family’s spending pattern better.  It also helped me assess my own preferences when it came to money matters.  I was able to base my financial plan on this.  Also, I learned to incorporate various influential factors into my financial plan.  Overall, the chapter provides a framework for financial planning.
Chapter 2: Financial Planning Tools

The first chapter provides the method to derive the goal and the path to achieve the goal.  This chapter provides the means of achieving such a goal.  In other words, it provides us with information on some of the basic tools required such as maintenance of financial records, computation of net worth, preparation of cash flow statement, using financial ratios, and understanding the time value of money.

The chapter lists out the benefits and various aspects of organizing the documents and records.  The issues to be thought about are how long to save a document and how to save it.  The purpose of safekeeping devices like a safe deposit box or lockbox should be understood before investing in one of them.

The two financial statements important for an individual are the Balance Sheet and the Cash Flow Statement.  The Balance Sheet reveals the financial position of the individual and the Cash Flow Statement summarizes the cash inflows and outflows.   Worksheets 1 and 7 provide the template for the preparation of these two statements.

Financial ratios such as the debt ratio and the savings ratio give a precise idea of your achievement.  It informs you if your debts are well within the limits of the assets you own and the savings ratio keeps your savings on track. 

Time Value of Money is essential to assess one’s financial success.  A common man thinks that he has earned well on his investment without considering when he is going to get the returns.  Understanding the concept of the time value of money becomes essential to know if the returns to be earned over a period of time are actually sufficient.

Chapter 3:

This chapter deals with identifying one’s short-term and long-term financial goals, evaluating one’s own abilities and interest in establishing a career plan, understanding and implementing a household budget, and monitoring and controlling expenses.

The chapter first provides the precise steps required to establish a set of goals.  It is important to list the goals on paper rather than just think about it.  The step regarding breaking bigger goals into smaller goals was a good tip.