Chapter 1: The Financial Planning Process
According to the lecture, there are five steps in the Personal Financial Planning Process. Applied to reality, I can use the article Get Smart about College to demonstrate five necessary steps that people choose to go colleges to achieve their goal. As first, parents and students have to go through first step which is analyzing their current financial position. Moreover, they need to think about what school to attend and how to pay the bills. Families should be sure to include good estimates of the non tuition costs also such as housing, food, books, transportation and more. They also shouldn’t rely too much on the budgets the schools provide. As moving toward to second step which are developing short-term and long-term financial goals, many families fail to focus on the short term thinking only. People tend to overvalue current consumption relative to future opportunities. Some wonder: “it’s always difficult to pay now or soon for benefits we won’t enjoy until years in the future” or “monthly payments are precise while the numbers attached to a better career in the future are vague and uncertain”. College is an investment and students are investing in themselves, so families should look at choosing and paying for a college like starting a small business. Families should also think carefully about situation when they are making estimates of future earnings. Therefore, families should think long term about all earnings such as estimating the income one college graduate expect over the next 10 years and so on. At the third step, parents and students identify and evaluate alternative strategies for achieving college graduate goal. Families can look for several ways to pay the fee and total cost of college such as borrow loan or apply for financial aid. Families should look at potential obligations and other considerations must