13 Chapter 1: The Financial Planning Process – Start Adulting with a Plan

 Conceptual Questions

• Defining Financial Planning
  Financial planning is a process of evaluating your current financial situation, setting meaningful goals, creating a plan to reach them, acting on that plan, and revising as needed. It goes beyond budgeting or investing by aligning money decisions with personal values and life stages.
• The Five-Step Planning Process

• • Evaluate your financial health
  • Set financial goals
  • Develop a plan
  • Implement the plan
  • Review and revise
    Most difficult step: Often “implement the plan” is the hardest due to procrastination, fear, or lack of motivation.

• Goals with Direction
  SMARTER framework: Specific, Measurable, Achievable, Relevant, Time-bound, Emotional, Reviewable.
  Example rewrite: “I will save $1,500 by October for a trip to Mexico by setting aside $250 per month.”
• The Role of Emotions in Money
  Emotions can lead to impulsive spending, financial avoidance, or panic. Kevin’s example: Buying a luxury car out of pride, only to sell it later when his priorities changed.
• Financial Identity and Career Choices
  Values shape career direction. High-paying jobs may not align with lifestyle, family, or mental health goals. Kevin left a high-status role to live a more meaningful, family-centered life.
• Crisis and Financial Resilience
  Kevin adapted during COVID by converting Airbnbs to long-term rentals and reducing expenses. Preparedness (emergency fund, flexibility, passive income) was key.
• Ten Principles
  • Answers will vary. Example: “Waste not, want not” helps reduce unnecessary spending and increase savings.

Scenario-Based Problems

1. From Panic to Planning
   Steps:

• Evaluate spending habits
• Set goal to build emergency fund
• Make a weekly/monthly savings plan
• Cut nonessentials, automate savings
• Reassess after 3 months

2. Smart Goal or Not?

• “I want to retire early” = not SMARTER
• “Save $1,000 in 5 months…” = SMARTER
• “Get rich” = not SMARTER

3. The Career Pivot
   Risks: Loss of steady income, uncertainty.
   Kevin planned by saving, reducing expenses, and shifting his business model. First steps: Budget for transition, update resume, explore freelance income.
4. Planning Through Chaos
   Short-term: Lower expenses, negotiate with lenders, switch to long-term tenants.
   Helpful habits: Having an emergency fund, multiple income sources, and flexible plans.
5. Life Stage Priorities
   Which financial priority best matches each stage of life? Choose the correct answer for each.

Age 20s
A) Build emergency fund
B) Save for children’s education
C) Plan retirement withdrawals
Answer: A

Age 30s
A) Buy luxury items
B) Start retirement withdrawals
C) Save for children’s education
Answer: C

Age 40s+
A) Start building credit
B) Increase retirement savings
C) Open student loans
Answer: B

Interactive Challenge

Steps in Financial Planning – Multiple Choice

• 1. What is the main task in the “Evaluate” step?
  A) Create a strategy based on your goals
  B) Make the changes and take action
  C) Track your current income and expenses
  D) Choose clear financial priorities
  Answer: C
• 2. What happens during the “Set Goals” step?
  A) Choose clear financial priorities
  B) Implement your budget
  C) Pay off all debts
  D) Open a savings account
  Answer: A
• 3. What does “Make a Plan” involve?
  A) Check your credit score
  B) Create a strategy based on your goals
  C) Automate your bills
  D) Reduce eating out
  Answer: B
• 4. What is the focus of the “Implement” step?
  A) Write your goals in a notebook
  B) Track your progress
  C) Make the changes and take action
  D) Open a checking account
  Answer: C
• 5. What is done in the “Review” step?
  A) Celebrate and never change anything
  B) Check your progress and adjust as needed
  C) Pay your taxes
  D) Apply for financial aid
  Answer: B

Personal Finance Compass
Example: “The principle ‘Time is more valuable than money’ shows up in my choice to start saving early, even if in small amounts.”

Career Alignment Self-Check
Reflective; answers will vary. A mismatch may show the need for lifestyle-focused income strategies or new career paths.