Lecture Personal financial planning – Chapter 6: Cash flow planning. The goals of this chapter are: Apply cash flow analysis to household finance, treat cash flow planning as a central activity in PFP, utilize budgeting techniques effectively, develop savings approaches, employ financial ratios as an evaluation method. | Chapter 6 Cash Flow Planning Chapter Goals Apply cash flow analysis to household finance. Treat cash flow planning as a central activity in PFP. Utilize budgeting techniques effectively. Develop savings approaches. Employ financial ratios as an evaluation method. Overview Cash flow planning underlies all major household decisions. Often, weak cash flow arises from poor planning and control of expenditures. All parts of a financial plan must incorporate cash flow considerations. In this discussion we focus on current operating needs. Overview, cont. The chapter’s planning objective consists of three parts: To recognize the importance of cash flow to achieving goals, To learn how to identify savings problems, and To establish what can be done in practical terms to overcome these problems. Cash Flow Planning and Current Standard of Living Cash flow planning: The scheduling of current and future cash needs to achieve household goals. Examples of cash flow planning objectives: Supporting a current life style. Paying off credit card debt. Saving for a vacation. More sophisticated and long-term goals include reducing tax liabilities and planning for retirement. Cash Flow Planning and Current Standard of Living, cont. Life styles vary significantly: Some people live simply. For others, identities and goals require spending on visible signs of achievement and status. We have a choice between spending and saving. To spend is to add to our standard of living today. To save is to provide for future needs. While most have no difficulty spending, many have difficulties in generating the amount of savings they require. Reasons for Savings Let’s consider eight motives for savings: The Pure Life Cycle Motive: To provide monies to even out differences in earnings over time. The Investment Motive: To take advantage of investment opportunities that can make achievement of our financial goals easier. Downpayment Motive: To provide monies for the down payment or full | Chapter 6 Cash Flow Planning Chapter Goals Apply cash flow analysis to household finance. Treat cash flow planning as a central activity in PFP. Utilize budgeting techniques effectively. Develop savings approaches. Employ financial ratios as an evaluation method. Overview Cash flow planning underlies all major household decisions. Often, weak cash flow arises from poor planning and control of expenditures. All parts of a financial plan must incorporate cash flow considerations. In this discussion we focus on current operating needs. Overview, cont. The chapter’s planning objective consists of three parts: To recognize the importance of cash flow to achieving goals, To learn how to identify savings problems, and To establish what can be done in practical terms to overcome these problems. Cash Flow Planning and Current Standard of Living Cash flow planning: The scheduling of current and future cash needs to achieve household goals. Examples of cash flow planning objectives:
