Introduction To PFM

8/7/2019 Introduction To PFM

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Introduction To PFM

Submitted To-

Dr. Manish Sitlani

Submitted By-

Rajkumar GangwalNeelam Tourani


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Personal Financial Planning The best way to achieve financial objective

is through financial planning.

It helps us define our financial goals and

develops appropriate strategies to reach

them.

With personal financial planning we canacquire use and control our financial

resources more efficiently.


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Financial Planning process Define financial goals.

Develop financial plans and strategies to

achieve goals Implement financial plans and strategies.

Periodically develop and implement budgets tomonitor and progress towards goals.

Use financial statements to evaluate results ofplans and budgets, taking corrective action asrequired.

Revision


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Defining Financial goals Financial goals are results that an individuals

wants to attain.

Without financial goals, its impossible toeffectively manage your financial resources.

Types of goals

(1) Long Term Goals (6+ years)

(2) Intermediate Goals (2-5 years)(3) Short Term Goals (1 year)


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From Goals to Plans Financial plans provide the road map for

achieving your financial goals. Reaching to aparticular goals requires different types of financial planning

(1) Asset Acquisition Planning

(2) Liability and insurance planning

(3) Savings and investment planning

(4) Tax planning(5) Retirement and Estate planning


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Asset Acquisition We accumulate assets throughout our lives

and it is very important to manage theseassets which are as follows

(1) Liquid Assets (Cash, Savings, accounts andmoney market funds) used to pay everydayexpenses

(2) Investments ( stock, Mutual funds, bonds)

used to earn returns(3) Property( Land, House, Vehicles, jewelry,

Home electronics etc.


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Liability and Insurance(A) To manage debt burden is just as importantas to manage assets

Liability is represented by amount of debt weincur. It includes Home loan, Education loan, carloan, credit card balances and other borrowings

(B) Insurance is a risk management technique, itreduces financial risk and protect both income

(life, health and disability) and assets But having wrong amount insurance can be

costly too.


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Savings and Investments People acquire wealth through savings and

subsequent investing of funds in various

investment vehicles like stocks, mutual funds,bonds, real state, commodities and so on.

The higher the rate of return on investments ofexcess funds, the greater wealth they

accumulate. How long an investor keep his money is also

very important aspect of investment planning


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Tax Planning The goal of tax planning is to arrange your

financial affairs so as to minimize your tax

burden

Tax Planning is moral way of tax savings,

there are various deductions, relieves and

incentives provided under income tax act.


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Retirement and Estate Planning It is very important to manage financial

recourses to attain those goals which are

important after retirement, this might

include

Maintaining standard of living

extensive travel

frequent dining at better restaurants etc.


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Financial Planning process for a client

Establishing client planner relationship.

Gathering data and determining goals and

expectations.

Determining the clients financial status byanalyzing and evaluating the clients information.


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Analyzing objectives, needs and financialsituation of the client.

Developing and presenting financial plan.

Implementing the financial plans.

Monitoring and Review


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Personal Budgeting

1.Record Keeping-

Permanent records

Temporary records

2. Preparing a personal budget-Budget Preliminaries

Gathering data


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3. Setting Goals ( short term and long term)-

Establishing priorities

4. Steps in Budgeting-

Estimating Incomes

Estimating Expenses

5. Finalizing budget-

Surplus budget

Balanced budgetDeficit budget


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Some rules on Personal Budgeting-

Goals Should be reasonable.

Fixed items of expenditure and necessities

should be provided first.

Savings should not be left to be made if

there is any residue income.


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Provisions for less frequent items of expense

should me made.

Size of expenses should not be the basis ofcutting an expense.

Need to differentiate between value judgmentand rule of thumb.

Provision for budget variation over the lifecycle.


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Personal Financial Statements

There are two types of personal financialstatements. They are-

1. Balance sheet statement of net worth.

2. Income Statement.

Analysis of financial statements-

1. Analyzing assets and liabilities.

2. Analyzing expenditure pattern.

3. Analyzing net worth.


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Classification of Assets-

1. Financial assets-Shares, debentures, etc.

2. Non financial assets-

Gold, land, etc.3. Earning assets-

Cash and cash equivalents & investmentassets.

4. Non earning assets-

Use assets. Ex- Residential house, car, etc.


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Classification of Liabilities-

1. Short term-Outstanding cheques or bills, credit carddues.

2. Medium term-

Consumer Durable loans, vehicle loans.

3. Long term-

Education loan, house loan.


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Personal Income statement-

Gross Income

- All Compulsory deductions

( PF, IT, PT)

= Disposable Income

- Recurring Payments

( Interest, Monthly expenses)- Non Recurring Payments

( Installments)


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Statement of Net worth

The statement is in the format of a

Balance sheet.

NET WORTH = TOTAL ASSETS

TOTAL LIABILITIES


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Thank You

Documents

Introduction To PFM