Personal Finance Ece Yavuzbaş Gökçe Uz Tevfik Kumru Kemal Pınarbaşı 1 2 Outline Definition Benefits Financial position Adequate protection Tax planning Investment and accumulation goals Retirement planning Estate planning Personal Budget Software Programs 3 It’s not your salary that makes you rich, it’s your spending habits. Charles A. Jeffe Definition of Personal Finance Personal finance is defined as the way in which an individual or a family makes decisions in relation to their financial portfolio. 4 Personal financial plan: a plan that specifies your financial goals and describes the spending, financing, and investing plans that are intended to achieve those goals Benefits of Personal Finance •Personal Financial Planning may not help you to earn more money, but it will help you to use your money more wisely. •As part of your personal financial plan, think about what is important to you. What do you want to accomplish? 5 Benefits of Personal Finance •Budgeting •Savings •Investment •Risk Management •Cash-flow management 6 Components •Financial position •Adequate protection •Tax planning •Investment and accumulation goals •Retirement planning •Estate planning 7 8 Financial Position Financial planning needs to understand what his/her/their financial situation is. Household assets Household liabilities Household cash flow 9 Financial Position Develop and implement a budget Calculate your net worth (wealth) using a balance sheet Develop a personal income statement and use it to analyze your spending Introduce budgeting software: Quicken, Mint.com and others 10 Adequate Protection Protected in event of an emergency must also be in place Natural disasters and death Buying insurance for each of these areas Risk Allocation 11 Tax Planning Certainties: Taxes and Death Income Value of Assets Single largest expense in a household Tax deductions Credits Impacts of Taxes Goals Estate Planning Retirement Planning Budget Taxes Investing 12 Cash Management Savings and Debt Insurance Investment and accumulation goals Planning how to accumulate enough money for large purchases Major reasons to accumulate assets include purchasing a house or car, starting a business ,paying for education expenses and saving for retirement Major risk to the households, the rate of price increases over time or inflation Investment and accumulation goals Financial planners suggest regular savings in a variety of ınvestments The investment portfolio has to get a higher rate of return Investors risk attitudes vary from person to person These types of financial goals require careful planning and secure investments. Retirement planning Personal finance involves planning for your or your families retirement You need to know how much money do you need to be retired and how do you finance this retirement Private Pension Private pension Private pension This is a long-term investment that are used by intermediaries instead of you When you come retirement age, you obtain a sum of money Payments are deposited to the Takasbank.They are under the control of government You can see your fund fluctuations on web site. Retirement companies Advantages of the private pension A small amount of contribution is paid each month You can earn more money with less money You can determine the degree of risk You don’t need to pay an other fee when devolved into another company Funds are conducted by professional portfolio managers The allocation of funds can be changed six times a year There is no loss of money Disadvantages of the private pension To be long-term investment You have to pay operating expenses like 8% Fund operating deductions are made If you exit the system less than 10 years,10% is interrupted When you evaluating the savings at exchange,you have to pay a tax for earning per tl to the government.however ıf you evaluate the saving at private pension companies, government don’t get a tax from you. 21 Estate Planning •Estate planning involves planning for what will happen when you die, and planning for the tax due to the government at that time. •Estate planning typically attempts to eliminate uncertainties over the administration of a probate and maximize the value of the estate by reducing taxes and other expenses. 22 Personal Budget A personal budget is a finance plan that allocates future personal income towards expenses, savings a and debt re-payment. 23 Cash Flow Trade Off’s Key Cash Management tradeoffs: 1. The Risk-Return trade off 2. The Spending-Investment Risk trade off 3. The Time Expended-Return trade off Softwares 24 25 Conclusion How can people protect themselves against unforeseen personal events, as well as those in the external economy? How can family assets best be transferred across generations (bequests and inheritance)? How does tax policy (tax subsidies and/or penalties) affect personal financial decisions? How does credit affect an individual's financial standing? How can one plan for a secure financial future in an environment of economic instability? 26 Thank You For Your Attention Do you have any question?