Final answer:
A comprehensive financial program includes evaluating risk tolerance, starting a savings plan, understanding personal investment options, and effectively using credit. Investment risk level should change over time, with higher risk acceptable early in a career. Workplace retirement plans like 401(k)s are also a key component.
Step-by-step explanation:
Creating a Comprehensive Financial Program
To prepare a savings, investment, and risk management program for an individual, one should start by evaluating their risk tolerance through tools like the 'iprofile'. Once the risk management profile is understood, the individual can begin a savings program. Establishing a regular saving habit is crucial, and this can be done by setting aside a portion of each paycheck. One should also get familiar with the functions of banking institutions and consider different savings accounts that could generate interest.
Investing is equally important, with early investments allowing more time for the 'nest egg' to grow. Individuals can explore personal investment options including stocks, bonds, and annuities. Stocks may offer dividends while bonds provide regular interest payments. Annuities offer fixed payouts, representing a lower-risk option. The trade-offs between the degree of risk and potential returns should be carefully weighed.
Additionally, a part of a comprehensive financial program involves understanding and effectively using credit. This includes maintaining a checking account, reconciling bank statements, identifying loan types, understanding borrowing responsibilities, and developing strategies to become a low-risk borrower by improving one's credit score. Workplace savings vehicles like 401(k)s with special tax statuses can also be part of retirement planning.
It is also important for one's investment risk level to change over time, usually decreasing as one approaches retirement age to prevent major losses close to when the funds are needed. Early in a career, a higher level of risk may be suitable, as there is more time to recover from possible losses.