Page 545 - Introduction to Business

CHAPTER 15 Personal Financial Planning 519

How Much of a Risk-Taker Are You?

aking financial plans requires that you assess how much of a risk-
taker you really are. Some people prefer to take no risks with their
Msavings and investments. Others are willing to take very high risks.
Most people are somewhere in the middle. Good financial planning will enable
you to make investments that fit your risk preferences. For example, you can
invest in low yield, but very secure bank certificates of deposit (CDs).
Alternatively, you can invest in corporate stocks, whose returns are not secure
but are potentially much higher than a bank CD.
Money invested in a bank CD might yield a fixed interest return of 3 percent
per year for five years. The same money invested in the stock market, such as
an index mutual fund, might yield the stock market’s historical average return
of 11 percent per year. However, the stock market offers no guaranteed return.
In fact, it could be even less than the bank CD. There have been time periods
when the stock market had very negative returns and other periods when it
had very high returns. Almost everyone agrees that investments in the stock
market should have a long-term time frame of at least several years.

Introduction

Personal financial planning should begin as early as possible in your career. Finan-
cial planning is both a process and an attitude that will hopefully become a habit.
Financial planning involves gathering all your financial and personal data, analyz-
ing that data, and creating a financial plan for the future. Next, you must take action
and follow the plan. Periodically, you need to review the plan and make necessary
changes as your environment and financial conditions change. This chapter pro-
vides information to assist you right now as a college student and to help you plan
for future years.

The Purpose of Personal Financial Planning

LEARNING OBJECTIVE 1
Explain the purpose of personal financial planning.
The purpose of personal financial planning is to meet current and future financial personal financial planning Planning
needs through a combination of effective planning and implementation of those that enables a person to meet current
and future financial needs
plans. Americans spend much of their lives earning money, but they rarely spend
any time planning how to use their accumulated wealth. Many people reach age 65
financially unprepared for retirement. Some college students think that financial
planning is unnecessary, or at least something that can be put off for years without
negative consequences. This is not true. Developing financial planning skills and
good spending habits at an early age will pay huge dividends in later years.
Personal financial planning takes time and effort, and it can be complicated and
frustrating. Financial planning may not make you wealthy, but lack of planning is
equivalent to planning for failure. Planning will almost certainly result in your
being better off than if you had not planned, and will, we hope, result in your life
being fuller and happier. Your financial success is worth some time and effort. Plan
today for your financial well-being.

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