Chapter 1 Essay
In the first chapter entitled “The financial planning process”, an in-depth analysis of what personal finance is carried out. It focused on the some prime aspects which must be considered by anyone willing to manage their personal finance. These were; goal setting, budgeting and spending, saving and investing, buying and leasing, investing in the future, insurance and also focusing on career and employee benefits decisions. The chapter also discusses what a poor financial planning can do to a person; which includes making bad decisions, wastage of time, failing to accomplish the goals, be exposed to a scam, suffering from anxiety, or even facing other problems in one’s personal life.
Good financial planning also allows a person to be independent provided that they implement the comprehensive financial planning process, which consists of five prime steps. As is mentioned, the financial capacity of a personal changes over their lifetime and hence it is important to plan our finances accordingly. The chapter has also taught about the impact of an individual’s own inclination to take risks. Apart from this, a person’s finances and also their buying power are affected by the rate of inflation. The rate of inflation erodes away at the buying power of consumers and can also be calculated specifically.
The chapter also explains the impact of the Federal Reserve policies on the interest rates prevailing in the economy. The chapter also sheds light on the financial professionals who are managing the finances of other people and what kind of certifications they need to acquire.
Chapter 2 Essay
The second chapter focuses on the financial planning tools and the usage of time value money to evaluate the financial condition of a person. It has helped me use key financial ratios to assess my financial position better. It has helped analyze the first step of the planning process, which involves analyzing the personal financial statements. It has also helped me find out which of the financial statements to preserve and for how long. Information regarding which documents to preserve and for how long is also clearly mentioned in the chapter, which states that birth, marriage, death certificates etc must be preserved for the long run.
Safekeeping of the documents has also been given priority. The personal balance sheet and the personal cash flow statements have been given more priority compared to other financial statements. Calculating the value of one’s assets and liabilities based on the current market value is also crucial. Calculation of the net worth, which involved subtracting the total value of debt from the total value of assets, is also given high importance. The cash flow statements as well as the expenses; both fixed and variable has been clearly mentioned and discussed how it affects the cash flow of an individual.
Essential formulas such as the debt management ratios are vital for calculating and maintaining one’s personal finances. This chapter has also helped me gain vital insights into savings methods and how it can help a person sustain their finances better. Time value of money is also a crucial idea to understand how the value of money depreciates over time and therefore to make better investing decisions based on that.
