Mastering Personal Financial Planning and Credit Analysis

Financial plan(planning)- process of managing your money to achieve personal economic satisfaction

Financial plan incorporates:

1.Formalized report-follows proper procedures, orderly,endorsed

2. Summarizes current financial situation-Now the way it is

3.Analyze financial needs- need to purchase for ?

4. Recommends future financial activities

5.Measure progress toward financial goals

STEPS FOR FORMAL FINANCIAL PLAN

1. Determine financial condition

2. Develop financial goals→ time frames

3. Develop courses of action-compare bettween different options, compare at risk and return, decide contionue or change course

4. Create and implement financial action

5. Review and revise as needed

6. semi-anually, annually, life changing event

Effective financial planning goals must be, based in reality, stated in specific measurable terms(keep score of where I’m at), Based on time frame, Action oriented  

Chapter 2

Ratios :

1. Debt ratio=Liabilities/Net worth For every 1$ of new worth you have 0.40 of liab to pay off.

2. Current ratio= Current assets/current liab For every 1$ in current liabilities you have 2 of current asset

3. Liquidity Ratio= current assets/monthly expenses number of months living living expense can be paid

4. Debt payments ratio- monthly credit payments/take home pay(net pay) How much of your take home pay goes to paying off credit payments

5. Savings ratio=amount saved/gross income How much $ do you save for every dollar of gross income

If nominal rate is 19% compounded monthly APY=?

APY= (1+0.19/12)^12 -1 =1.2075-1=20.75

5C of credit assets credit worthiness

1. Character→ credit report→ do you pay your bills on time? Qualitative credit score companies FICO and Vantagescore

2. da

3. Capital-what are your assets worth, what is your net worth

4. Collateral-what assets do you have to secure a loan

5. Condition-Lenders review general economic conditions and how they affect your ability to repay the loan

POD- payable on death-designated beneficiary to receive all of (clients) assets. Keeps you out of probate court. Supersedes last will and testament.

TOD- transferable on death, beneficiaries receive assets on time of person’s passing w/o going to probate investments

Insurance - provides compensation for loss. Spreads the cost of sharing risk.

coverage- a specific type of loss

claim- written request for reimbursement to cover loss or damage that occured from a specific event

insurance policy- written conttract between isurer and insured describes coverages,financial compensation