Personal Financial Management - PowerPoint PPT Presentation

Loading...

PPT – Personal Financial Management PowerPoint presentation | free to download - id: 6e43d7-ODliZ



Loading


The Adobe Flash plugin is needed to view this content

Get the plugin now

View by Category
About This Presentation
Title:

Personal Financial Management

Description:

Title: Personal Financial Managment Author: Myles Last modified by: garethadmin Created Date: 1/1/2000 12:14:44 AM Document presentation format: On-screen Show – PowerPoint PPT presentation

Number of Views:91
Avg rating:3.0/5.0
Slides: 32
Provided by: Myl62
Learn more at: http://people.exeter.ac.uk
Category:

less

Write a Comment
User Comments (0)
Transcript and Presenter's Notes

Title: Personal Financial Management


1
Personal Financial Management
  • Semester 2 2008 2009
  • Gareth Myles g.d.myles_at_ex.ac.uk
  • Paul Collier p.a.collier_at_ex.ac.uk

2
Lecture Notes
  • These slides are available at
  • www.people.ex.ac.uk/gdmyles/GDM.html
  • Course Textbook
  • G. Callaghan Personal Finance
  • Wiley
  • Secondary Textbook
  • T. W. McRae Managing Your Own Finances
  • Thomson Learning

3
PFM Classes
  • The class teachers are Zhiren Mao and Humaira
    Asad
  • There are six groups
  • Each group meets once every two weeks
  • Groups/times are displayed on notices
  • Exercises are found on the web page

4
Reading
  • Callaghan Chapter 1
  • McRae Chapter 1

5
Why manage?
  • Increasing self-dependence
  • Student tuition fees and loans
  • Tories plan to keep student fees (Link)
  • More students declare bankruptcyThree times
    more students wrote off student loans by
    declaring themselves bankrupt in 2003 than in
    2002. 899 filed for bankruptcy last year,
    compared with 276 in 2002, 249 in 2001, 97 in
    1998 and eight in 1992. A number are thought to
    have taken advantage of a loophole in government
    legislation allowing student loan debts to be
    cancelled out by bankruptcy. (Link)

6
Why manage?
  • Increasing self-dependence
  • Health care
  • Two-tier NHS care for pregnant women ready to
    pay 4,000 (Link)
  • Private pensions
  • New bond threat to pensions (Link)
  • Pension reform what other countries do (Link)

7
The State Pension
8
Why Manage?
  • Financial risks
  • Property prices continue to fall
  • House price inflation in England and Wales
    dropped sharply in December, according to the
    Land Registry. Average prices fell by 0.4 in
    December. The December fall was the first
    decline recorded by the Land Registry since
    August 2005. It said the latest data was "a
    clear indication of a weakening market". The
    average house price was 184,469 in December.
    (Link)

9
Why Manage?
  • Increasing financial complexity
  • Range of products
  • Mortgages (discount, fixed, interest only)
  • Insurance (car, house, life, travel)
  • Pensions (defined contribution, defined benefit)
  • Exposure to products
  • Student loans
  • Credit cards
  • Legislation sellers packs (Link)
  • Choice saving for children (Link)

10
Why Manage?
  • The current financial crisis has shown
  • The vulnerability of the financial system
  • The extent of risk
  • The implication is uncertainty about the future
  • When will economic growth return?
  • How will the economy be organized in the future?
  • Financial planning must take this into account

11
Lecture Topics
  • Week 1 Introduction
  • Week 2 Risk and Return
  • Week 3 Financial Assets
  • Week 4 Personal Taxation
  • Week 5 Capital Gains and Estate Duty

12
Lecture Topics
  • Week 6 Insurance
  • Week 7 Interest and Interest Rates
  • Week 8 Purchasing Real Assets
  • Week 9 Pensions and Annuities
  • Week 10 Revision Lecture

13
Style
  • Partly practical
  • E.g. What kinds of mortgages are available?
  • Partly analytical
  • E.g. How do you calculate the payments?
  • Intention
  • To allow evaluation, comparison and selection

14
The Need for Planning
  • Example 1 Housing
  • A standard 1930s three-bed semi-detached house
    in Exeter costs 200,000
  • This is 8 times average earnings (24908 in 2007
    Data)

15
The Need for Planning
  • The interest payments on a 100 mortgage would be
    10,000 per year
  • Most mortgage lenders would not lend more that 4
    times income
  • This is only half what is required
  • How can this be affordable?

16
The Need for Planning
  • Example 2 Pensions
  • USS, the pension scheme for university employees,
    pays a pension of 50 of final salary plus a
    lump-sum of 150 of final salary.
  • A professor earning 60,000 would receive a
    pension of 30,000 (protected against inflation)
    plus a tax-free lump-sum of 90,000.
  • How much would you need to save to obtain this
    with a private pension?

17
The Need for Planning
  • Assume inflation/length of life cancel out
  • Assume a 5 interest rate. Then 30,000 per year
    requires savings of 600,000. With the lump-sum,
    total required is 690,000
  • With a 4 interest rate, 840,000 is required
  • Even with 7, the sum is 520,000
  • Can this be accumulated?

18
The Need for Planning
  • Example 3 Life-Cycle Earnings
  • Most career paths have earnings that increase
    over time
  • The typical earnings profile is shown in Figure 1
  • The typical pattern of savings is shown in Figure
    2

19
The Need for Planning
Income
Retire
Age
Enter work
Figure 1 Income
20
The Need for Planning
Saving
Age
Enter work
Retire
Figure 2 Saving Income - Expenditure
21
Earnings Profiles
Year 1 3 4 8 11 15 17
Salary 28010 28849 29716 34448 37642 42367 45166
University Lecturer
House Officer Senior House Officer Registrar Qualified Consultant
19703 24587-34477 27483-41733 28845-72882 67113-90838
NHS Hospital Medical Staff
Year 1 3 5 7 9 11 13 15
Salary 18264 21645 22992 24501 25848 26688 27669 28905
Police Officer
22
The Need for Planning
  • The need for planning is to produce a smooth flow
    of consumption
  • This requires borrowing early in life, saving in
    mid-life and planned dis-saving in retirement
  • This process should be planned and managed

23
The Need for Planning
  • Example 3 Costs and Rewards
  • Consider the annual cost of a maintaining a
    typical standard of living for a family of four
  • Mortgage 15,000 Food 7,000
  • Utilities 4,000 Holidays 5,000
  • Cars 3,000 Other Items 5,000
  • TOTAL 39,000
  • To support this expenditure requires a pre-tax
    income of about 60,000

24
The Need for Planning
  • For some additional items
  • Education 15,000
  • Leisure 5,000
  • The required pre-tax income is now 90,000
  • And this does not include pension contributions
  • How does this compare with salaries?

25
Salaries in the UK
  • Teacher 30,000
  • General Manager 30,000
  • Junior Civil Servant 35,000
  • Accountant (non-partner) 40,000
  • Solicitor 40,000
  • Professor 50,000
  • MP 60,000
  • Accountant (partner) 65,000
  • Doctor (GP) 80,000
  • Doctor (Consultant) 80,000
  • Judge/Senior Civil Servant 120,000

26
Observe
  • How few achieve the required 60,000
  • And very few 90,000
  • Conclusion
  • To meet such aspirations requires planning
  • career choice
  • expenditure
  • investment

27
Financial Plan
  • Short-term
  • Example 1 To provide finance for university
  • Aim to graduate with only student loan
    outstanding
  • Expenditures fees, accommodation, books, leisure
  • Income loan, work, savings
  • Options summer work, reduce leisure costs

28
Financial Plan
  • Medium Term
  • Example 2 To provide finance for house purchase
  • Aim To purchase in fifth year of employment
  • Expenditures Rent, food, car, utilities
  • Income Work
  • Options Reduce holidays, sell car

29
2007 2008 2009 2010 2011
Income
Salary 25000 26000 27000 30000 31000
After Tax 17500 18200 18900 21000 21700
Expenditure Expenditure
Rent 7000 7200 7400 8500
Mortgage 10000
Food 4000 4050 4100 4150 4200
Car 1500 1700 1800 1800 1900
Utilities 800 840 900 940 1000
Clothes 500 550 600 600 600
Holidays 2000 2100 2200 2300 3250
Sundries 500 500 500 500 500
Total 16300 16940 17500 18790 21450
Savings 1200 1260 1400 2210 250

Total Saving 1200 2460 3860 6070 320
House Deposit House Deposit 6000

30
Financial Plan
  • Long-Term Plan
  • Objectives To enjoy at least two holidays a
    year, detached house, run two cars (lt3), finance
    children through university
  • Requirements Evaluation of costs, borrowing
    possibilities
  • Choices Career options to make this achievable

31
Financial Plan
  • Very Long-Term Plan
  • Objective To retire at 55
  • Requirements Sufficient savings
  • Pension rights
  • Potential lifespan
  • Choices Career options, investment choices
About PowerShow.com