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Using the six-level pyramid to help explain the various building blocks to financial success helps to reveal the development of financial planning and indications, at each level, if instruments that might be considered. At the first level of the pyramid, there are four stages that need to be considered. Before any phase of an action plan can be implemented, an individual's current situation must be determined. One must evaluate their personal income because the amount of money a makes directly affects the amount that person can save. After all debts and living expenses are subtracted form income, one can know how much to put in savings every week, month or year. The amount one puts in savings is very important.
This will have bearing on a spouse, children, and retirement life. Saving money should become a top priority in the financial planning realm of life. Goals are another important factor in financial planning. Without goals, a person has nothing to strive for, nothing to look forward to. This should come with ease during the implementation of a financial action plan. Career choice plays a major role in one's ability to live at a certain level in society.
There are many factors to consider when making a career choice. They include personal factors, social influences, economic conditions, and trends in the industry. A person must consider these things when deciding on a career if they want to have long-term success in any given profession or calling. Keeping good records and being organized is a necessity for a person with a successful financial action plan. After receipts have been found, invoices filed, and check numbers recorded, one can develop a budget. A budget simply allocates income to different areas of spending.
For example, one family may spend two hundred and fifty dollars per week on groceries, while another only spends one hundred per week. A budget can be done on a weekly, bi-weekly, or monthly time frame basis. An important part of an overall budget is taxes. Taxes, in general, include federal and state, occasionally county expenses on land owning's and other purchases. A person should be fully aware of how to calculate their taxable income and on how to get help with taxes. The second level of the pyramid involves managing.
The absolute first way to begin with money management is to get the money out of a pocket (or from under a mattress) and put it into am interest-bearing account. Before this can be done, however, the best bank suitable to a person's needs mus be located. To do this, one must evaluate the different banks' rates, fees, and other factors such as number in branched in the area and the services offered. One should examine the gains and losses of having a checking account as well.
Credit is a way of life for million of American today. In my opinion, one must be very cautious when choosing whether or not to use consumer credit. There are almost always hidden costs and consumer traps ready to suck a trusting person in. One should be aware of possible credit mistakes and try their best to avoid them. Also, spending far above one's personal income level can become a major problem if taken advantage of. In the market for loans, the most enduring statement is to "Shop Around!" A person will never know what could be gotten until they try to look for the best deal.
One should be aware of the fluctuation of interest rates and the affect that they will have on the principle amount of money borrowed. The third level of the pyramid illustrates the major purchasing decisions in life. Should I buy that shiny new Mustang on credit or save that money for a down payment on a home in a nicer neighborhood? The allocation of personal funds is one of the most harrowing sets of decisions a person will ever make. The decision to purchase a home is in this set. This will probably be the most expensive purchase one will ever make.
One should be sure that the purchase of a new home is not outrageously out of his or her income range and that it meets all of their needs. The second most important purchase would be that of a new vehicle. A car purchase can be an exciting time. Since cars are seen as status symbols in society today, most people attempt to buy one that they cannot afford. This can be ruining to credit and make daily expenses much harder. Day to day existence in today's society can be dangerous if a person does not have adequate insurance coverage for self, spouse, and children (if any).
The fourth stage of the pyramid deals with the adequate amount of insurance. How much is too much or too little? Risk management is a major factor in this. For example, a race car driver is not going to get a good a rate of insurance as a middle aged accountant. Factors such as car accidents, speeding tickets, safety measures taken, and daily activities such as smoking or drinking all affect the amount different types of insurance will cost an individual. After life insurance, I believe that the next necessity is to have automobile and home insurance.
These are the two most likely things that someone might have to call on insurance to cover. Health care and disability insurance truly comes in to play when one has a family, nut possibly when single if severe illness occurs frequently. Finally in the fourth level, a value must for life insurance must be chosen. This is directly affected on who will be left depending on money received from your life insurance. This insurance money can be left as a legacy, as a help for funeral expenses, or even a gift from the deceased.
The fifth stage of this financial planning pyramid is about investing. There are four fundamental ways that one can invest. They are stocks, bonds, mutual funds, and real estate. Stocks are divided into two main categories, common stock and preferred stock. Common stock makes money by dividing the value of an investment three ways: income from dividends, dollar appreciation of the stock value, and stock splits.
Preferred stock is similar to common stock. However, with preferred stock, the investor receives his / her cash dividends before the holders of common stock receive theirs. There are a number of factors that enable investors to evaluate the value of any certain stock. One can read daily newspapers, and gain information from professional in the stock market field.
Bonds are divided into two main categories as well. A corporate bond is a corporation's written pledge to repay a specified amount of money plus interest gained over a specific period of time. This total is referred to as the face value of the bond. Corporations issue bonds in order to have available monies to finance expansions, takeovers, etc. This is referred to as debt financing for a corporation. The other type of bond is one that is issued by the federal, state or a local government agency.
The bonds that the federal government sells are referred to as treasury bills, notes, bonds, or savings bonds. These are used to finance the national debt and for the government's everyday activities. A municipal bond is one that is issued by a state or local government. All three of these types are said to be generally risk-free. As a financial planner, I would advise my client to seriously look into bonds.
Mutual funds are unique in the fact that there is diversification of the purchased portfolio. A person's money goes into a large pool, which a company then invests in many different stocks. The last type of fundamental investing is Real estate. There are different types of real estate investments. For example, your home can be an investment if handled properly or one can purchase commercial property for resale only. The sixth and last stage of the pyramid involves retirement and estate planning.
Taking steps now to ensure that a person has money during retirement is particularly important. This should be linked in with the amount of money chosen to save in part one of the financial planning program. Last of all, one must know a little about estate planning. There are legal and personal aspects of this matter. "Estate planning is the plan for the disposition of one's property during one's lifetime and at one's death. " Legally, everyone needs to have a last will and testament to ensure that their properties are distributed accordingly.
A lawyer usually needs to be consulted on this matter. In summary, the most important aspect of financial planning is just what it states-PLANNING. A great deal of money can be gained and saved if the correct methods are incorporated into a person's everyday life and activities.
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Research essay sample on Personal Financial Success The Six Level Pyramid
