FIN2602-notes. Summary

Study unit 1: Personal financial planning What is meant by financial independence? Such independence does not mean that an individual must have accumulated great wealth over his or her lifetime, but in fact means that the retired person will not be dependent on the state, family or friends for survival. Such a person should also not have to continue working after retirement, but should be able to survive financially by virtue of his or her investments made over a lifetime Uncertainty is created by the following factors: - Changing legislation - The development of new financial products - The influence of the media both as a marketing tool and an advisor Personal financial planning consists of a number of different planning areas. Investment planning is one of those areas Financial independence does not necessarily suggest great wealth, but rather that the individual has made optimum use of his or her income, irrespective of the level of that income Reason for the increasing complexity of Personal financial planning: - Changing economic conditions - The changing political climate - Inflation - The large number of financial institutions - Advertisements in the media - A multitude of financial instruments and products - Conflicting financial advice Household resources: - assets, - skills, - trained persons, - knowledge, - money, - equipment - entrepreneurial spirit The financial function of an enterprise comprises the flow of funds to and from the enterprise. It consists of the acquisition of funds and the employment of funds in order to achieve the primary objective of the enterprise: maximum prosperity for the owners of the enterprise over the long term. In a household, the financial function comprises the flow of funds to and from the household. Funds have to be acquired and employed in order to achieve the primary objective of the household: to attain financial independence after retirement Management