Term Paper on "Personal Financial Management"

Term Paper 56 pages (15430 words) Sources: 1+

[EXCERPT] . . . .

Financial Planning

Charting the Course: Planning for Life after College

It has frequently been said that the end of college is not an end at all, but is rather the beginning of life's journey. Because life is a journey rather than a race, it is important to make some plans ahead of time so the path is known and the destination understood to the extent possible in advance. When most people set out on a journey to destinations unknown, they usually secure a map ahead of time to avoid getting lost. Likewise, a map of an individual's life journey can help a person stay on course and avoid the pitfalls that await the unwary along life's roads; however, in some cases, there is no real adventure on a trip without straying slightly from the path to see what is down the "road less traveled." At any rate, with such a life's map in hand, the journey through life will be more predictable and progress easier to chart.

Statement of the Problem

Growing old and retiring is a phenomenon of growing importance in economic life. As a result of the establishment of social security in 1935, the increase of private pensions after World War II, and the general rise in living standards since the Great Depression, an extended period of retirement has come to be regarded as a normal end to a successful career. Furthermore, as the result of innovations in healthcare technology and medicine, longevity has been increasing, and retirement ages have been declining. As a result, retired people represent a growing proportion of the population. When the baby boom generation begins retiring in 2005, this proportion will also rise at a sharper rate. "Faced with the prospect of changes to retirement plan provisions, many workers will probably prefer lower early retirement benefits rather than pushing back the age at which retirement can commence" (Rappaport & Schieber, 1993, p. 148). Consequently, trends in retirement have raised important questions about the financial soundness of some of the main institutions that provide income to retirees and their families such social security, other public and private pension plans, and Medicare (Aaron & Burtless, 1984). Therefore, identifying effective means of ensuring for a sound retirement early on just makes good business sense today.

Purpose of Study

The purpose of this study is to develop a comprehensive and viable financial plan for a graduating college student that will grow and change with him as he passes through the different stages of life. The key points addressed in this financial planning regimen include, goal setting, saving, debt management, insurance needs, career planning, retirement planning, and how they are impacted as the student moves from single to married to family to retired.

Importance of Study

The demographic composition of the United States is changing in fundamental ways. Beyond the ethnic shifts taking place in the country, there are going to be a lot more people retiring in the years to come than ever before. The graduates of today are faced with a dual burden of inheriting this growing retired segment of workers, while trying to provide for their own personal well-being and that of their families. In order to achieve a satisfactory standard of living as life progresses in this changing environment, younger workers are going to have to hit the ground running.

Scope of Study

This study will examine the factors involved in financial planning regimen for college graduates today in general, with a focus on the research in particular.

Rationale of Study

It is widely recognized that early planning is an important part of the retirement planning process. According to McKinney (2003), "A well planned estate allows you to decide how your property will be administered during your lifetime and distributed after your death." Today, many Americans are affluent at midlife and are naturally looking forward to a comfortable retirement. These lucky individuals already enjoy sizable pensions, investments and an accumulation of assets like homes, second homes and other valuable property. "They need not worry about outliving their assets and may be more concerned about protecting their wealth through tax-saving strategies, estate planning and setting up trusts for their heirs" (Genovese, 1997, p. 13). Those adults who have not begun to plan, though, may learn the hard way about what is involved in the process when they are forced to assist their aging parents with financial and estate decisions. "While many older adults have well-organized financial affairs, other adult children find parents' plans and records in disarray. They may get 'on the job' experience as they try to untangle their parents' affairs after a health or financial crisis" (Genovese, 1997, p. 13). While practical experience may be the best teacher, the importance of saving for retirement is reinforced for many people today who are alarmed by their first experience with the costs of home care, retirement community living or nursing home care. Genovese reports that a private nursing home costs $40,000 per year or more, depending on the part of the country and the type of facility. Another factor that can shock first-time estate planners comes from the realization that their parents may outlive their resources or face spending down their assets to qualify for Medicaid when they enter a nursing home.

Definition of Key Terms

Career. For the purposes of this study, the term "career" will refer to employment in an occupation that will ultimately lead to retirement along a predictable career path in a profession of the individual's choosing. For those who fail to make the distinction between life's "calling" and a "career," the results can be disappointing or even disastrous. According to McGee (2003), people who do not pursue employment in an occupation they will enjoy are going to pay for it the rest of their working lives. By defining career success in terms that also embrace such nebulous issues as personal satisfaction and self-worth, the type of lifestyle demanded by the occupation, and what benefits can reasonably be expected to be associated from pursuing such a career path, the individual will be in a better position emotionally and psychologically -- and perhaps even financially -- when the journey is over.

Goals. A "goal" as discussed in this study is "the object of an action; it is what a person attempts to accomplish. Goals include such efforts as, ". . . attempts to sell more products, to improve customer service satisfaction, and to decrease absenteeism in a department by 5%" (Ivancevich, 1995, p. 219).

Professional. According to Black's Law Dictionary (1990), a professional is "one who is engaged in one of the learned professions or in an occupation requiring a high level of training and proficiency" (p. 1210).

Overview of Study

This chapter introduced the issues involved in preparing for graduation from college and making plans for life's journey. A statement of the problem, the purpose and the importance of the study were followed by a discussion of the study's scope and rationale. Definitions of key terms were also provided. Chapter Two will provide a review of the related peer-reviewed literature, and Chapter Three describes the study's methodology, a description of the study approach as well as the data-gathering method and database of study used. Chapter Four reviews the analysis of the data developed during the research process, and Chapter Five provides a summary of the research, conclusions and recommendations.

Chapter 2: Review of Related Literature

Goal Setting

In 1978, Locke presented the now-classic paper, "The Ubiquity of the Technique of Goal Setting in Theories of and Approaches to Employee Motivation," and ever since there has been a growing interest in applying the goal-setting technique to a variety of settings. Locke's view of an individual's conscious goals and intentions were that they were "the primary determinants of behavior" (p. 36); in other words, a universal characteristic of intentional behavior was that it "tends to keep going until it reaches completion." As a result, when a person starts something such as a new job or project, that person will keep striving toward completion until the goal is achieved.

A study was conducted early on to determine whether goals change work efficiency without affecting the associated physiological cost (Wilmore, 1970). To this end, Wilmore conducted a series of experiments to determine whether goals enhanced the accomplishment of a physical task and found that ". . . goals should be behind every performance if maximum performance parameters are to be stimulated" (p. 37). The results of Wilmore's experiments indicated that "physical performances without set goals will not produce the best form of physical response. As has been demonstrated by champion athletes, every task of training and competitions must be oriented to some particular explicit goal that will focus the athlete on functioning with the greatest efficiency in performance. A physical activity at training without a goal-orientation is a wasted opportunity for improvement" (1970, p. 38).

Therefore, goal-setting appears to be an essential component in the effective application of physical effort. In organizational settings, at least,… READ MORE

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