Class notes
Lecture notes Personal Financial Management-FTX2000S (FTX2000S)
- Institution
- University Of Cape Town (UCT)
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What is financial Planning ?For a business → Planning directing monitoring organising ,
, ,
and
controlling of monetary resources of
an organisation
→ management of finances of a business /
organisation to achieve its financial
objectives
for an individual → Planning directing , , monitoring organising
and
controlling of personal monetary
resources
→ management of personal finances in
order to achieve personal financial
objectives
factors that influence the personal financial plan :
i
G- oats
-
Values
-
your personal choice
-
Any major event that took place in
your life
.
your needs
•
Present and future life cycle -
condition .
personal financial life -
cycle → 6 Stages
St 7- St 2 SE 3 St 4 5 St G
st
. . -
. .
.
o -
I 8 18 -
late late 20 'S / It no post mid
yrs eccy
-
.
20 's -7 60
thirties early 30 'S mid 60
-
lateuo'S
50 'S
early
1-
§ g-
§
§ g
&
o
e
o
z
or
or it §
•
g
is *
•É
Accumulation consolidation Preservation
→
Building wealth ,
→
Protecting wealth , →
no new assets
less focus on finale -
risk protection , appreciation
,
risk investment Planning income fromassets
, :÷÷:÷:÷÷÷÷:-.
"
÷
2 Dependent low low
-
Single low
high high / low
✓
Family low
5 high
Retirement law low
Life -
cycle conditions that effect PFP
-
Employment status / skill level
.
Age and education
.
Marital status / having a family → number of dependents
'
General economic outlook
-
Health
Income
-
why PFP can be beneficial
Highlights options → itc priorities
Provides financial security
Gives more direction of what you want to do
Planned savings and financial discipline
creates wealth and prevents loss of life
Gives time to save ( retirement )
help prioritise between needs and want
facilitates financial responsibility
Risk Us Return relationship
Greater risk is taken if greater returns can be expected
Return
higher slope is wanted here ( greater )
return
Risk
Higher level of returns =
higher risk level taken
, -
more risk Averse
Return -
moderately risk averse
-
less risk averse
Risk
* risk to avoid risk
averse =
seeking
Evidence of risk aversions by indiv .
-
long
-
term insurance
-
preference of bonds ( government bonds) as investments -
guaranteed
returns
-
fixed deposit as investment and not invest in shares on JSE
what determines level risk of aversion
-
Personality some people are more prone to take risk
-
.
Financial resources if you have wealth more likely to
- -
take risks .
•
Age -
most older people more risk averse
-
Number of dependents -
the more dependents -
the more risk avosd
-
Education / skill level -
better opportunity
Supper 1 back up
- -
Setting Personal Financial Goals
•
Identify financial goals → derived from non
-
financial objectives
-
prioritise financial goals
Categorise financial goals → shot
/ medium / long term
-
-
-
Estimate cost and saving requirement
-
Design appropriate savings Plan
-
Maita and update
General problems with goal
-
setting
-
Too ambitious
-
Too vague
- Too conservative
Too many / few
-
-
unwritten
- Prioritise
.
Realistic timeframes
-
Not measurable and do not consider inflation
, -
Specific ( Significant )
-
Measurable ( meaningful 1)
-
Attainable ( Action -
orientated )
Relevant ( Rewarding)
-
-
Time -
bond ( Trackable)
Your Personal Statement of financial Position
•
Balance sheet ( SNAPSHOT) of financial position at a
point in time
It will consist of -
Assets
-
liabilities
-
Equity
-
must reflect fair current market) value
Equity ( net Asset value ) =
Assets -
liabilities
for my household / indiv .
-
objective is to maximise equity
→
increase assets
→ decrease liabilities
•
cash flow statement -
provides info about gross
cash receipts ( income) and cash for specified
payments
period of time ( math )
Budgeting
Budget -
detailed itemized monetary summary of estimated
future income and expenses for given period
full
Budgeting helps reveal picture
-
- Allows for control
Identifies potential
savings
-
- Leads to financial discipline
Budgeting steps -
collect information
-
identify and list all sources of income
-
identify and list all expenses
classify and prioritise expenses
-
-
construct budget
Balance and budget
adjust
-
- Keep ongoing records
-
measure outcomes and review budget
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