Page 14 - DMGT515_PERSONAL_FINANCIAL_PLANNING

Unit 1: Basics of Personal Financial Planning

Change the current situation. Notes
Take a new course of action.
Not all of these categories will apply to every decision situation; however, they do represent
possible courses of action.
Creativity in decision making is vital to effective choices. Considering all of the possible
alternatives will help you make more effective and satisfying decisions.

Step 4: Evaluate Alternatives

You need to evaluate possible courses of action, taking into consideration your life situation,
personal values, and current economic conditions.
Consequences of Choices. Every decision closes off alternatives. For example, a decision
to invest in stock may mean you cannot take a vacation. A decision to go to school full
time may mean you cannot work full time. Opportunity cost is what you give up by
making a choice. This cost, commonly referred to as the trade-off of a decision, cannot
always be measured in dollars.
Decision making will be an ongoing part of your personal and financial situation. Thus,
you will need to consider the lost opportunities that will result from your decisions.
Evaluating Risk
Uncertainty is a part of every decision. Selecting a college major and choosing a career
field involve risk. What if you don’t like working in this field or cannot obtain employment
in it?
Other decisions involve a very low degree of risk, such as putting money in a savings
account or purchasing items that cost only a few dollars. Your chances of losing something
of great value are low in these situations.
In many financial decisions, identifying and evaluating risk is difficult. The best way to
consider risk is to gather information based on your experience and the experiences of
others and to use financial planning information sources.

Financial Planning Information Sources

Relevant information is required at each stage of the decision-making process. Changing
personal, social, and economic conditions will require that you continually supplement and
update your knowledge.

Step 5: Create and Implement a Financial Action Plan

In this step of the financial planning process, you develop an action plan. This requires choosing
ways to achieve your goals. As you achieve your immediate or short-term goals, the goals next
in priority will come into focus.
To implement your financial action plan, you may need assistance from others. For example,
you may use the services of an insurance agent to purchase property insurance or the services of
an investment broker to purchase stocks, bonds, or mutual funds.

Step 6: Re-evaluate and Revise Your Plan

Financial planning is a dynamic process that does not end when you take a particular action. You
need to regularly assess your financial decisions. Changing personal, social, and economic
factors may require more frequent assessments.

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