The financial planning process: A. What Are the Activities Involved in the Process of Personal Financial Planning?
Personal financial planning requires you to engage in a variety of different planning activities, including asset acquisition planning; liability and insurance planning; savings, investment, and tax planning; employee benefit and retirement planning; and estate planning.
The nature and complexity of these planning activities will flow from your goals and personal circumstances, such as your current and expected future income, your wealth and available financial resources, and your current place in the life cycle. Changes in your circumstances and/or the economy can necessitate changes to these planning activities
B. What is tax planning, and how is it related to savings and investment planning?
Tax planning involves evaluating your current and projected earnings and developing strategies that can legally and/or your tax liability.
As it is currently written, the U. S. tax code recognizes several types of taxable income, including:
1. Active income
2. Passive income
3. Portfolio income
4. Tax-deferred and/or tax-free income
Tax planning is closely related to savings and investment planning, because tax-reducing strategies often involve the use of tax-deferred or tax-free investments Tax-free investments are so called because the interest or other income paid to their owners is federal, and, perhaps, state taxes. Owners of tax-deferred investments, on the other hand, are allowed to paying taxes on any returns generated by the investment.
C. What is employee benefit planning?
Employee benefit planning involves selecting, coordinating, and managing employer-provided compensation that the form of cash payments, such as wages, salaries, and commissions. These benefits can include sick leave, vacation, and personal time; life, health, and disability insurance; tuition reimbursement programs; pension, profit-sharing, and retirement plans, and flexible spending accounts (FSAs) for care and health care expenses.
D. Which of the following are tasks included in the process of employee benefit planning?
1. Determine the best methods for financing purchases of expensive and long-lived assets
2. Coordinate self-purchased policies and coverages with benefits provided by your and your spouse's employer.
3. Ensure the availability of a minimum necessary level of protection and coverage should you or your spouse lose your employer-provided benefits Select the most appropriate benefits and plans.
D. What are retirement planning and estate planning?
Retirement planning is designed to achieve and maintain your desired standard of living and quality of life after you stop working To achieve the best results, it is critical that you begin your retirement planning your retirement. Most Americans, however, don't level of start thinking about retirement until well into their The cost of this postponed planning is a substantially retirement income. Estate planning, the second half of retirement planning, involves the method by which your will be passed on to your heirs, often by way of wills, trusts, and gifts.
E. In general, at what age should you start addressing your financial planning activities?
In general, it is best to begin the six planning activities-asset acquisition, liability and insurance, savings and investment, tax, employee benefit, and retirement and estate-planning as soon as possible. However, at what age is it generally recommended that you begin your employee benefit planning activities?
1. My mid-20s
2. In my early childhood
3. When I turn 70
4. My early-60s