Development of a personal financial plan
A. Describe a current life situation or one expected in the future providing details related to:
· household situation,
· marital status,
· occupation,
· income,
· current financial position (balance sheet and cash flow statement),
· living expenses (budget),
· housing situation.
B. Set goals related to the various aspects of personal financial planning, including:
? Career planning and development
? Spending plan/cash flow analysis
? Tax planning
? Use of credit
? Savings and investment program
? Changes in housing situation
? Major consumer purchases
? Insurance needs
? Retirement and estate planning
C. Conduct research (library materials, Web searches, analysis of advertisements) to obtain methods for achieving these goals.
D. Present findings of research and suggested courses of action in a written report.
The final report should include the following sections:
? Introduction/background of the persons/households situation
? Identification of financial goals
? Discussion of research techniques and findings
? Recommendations for specific actions to be taken as well as methods that could be used to monitor the suggested financial planning activities
***The primary benefit of this project is to provide you with a ‘road map’ to help you reach your financial goals. Specific income and expense budgets, expected costs of goals, such as a home price, would be helpful. It should all come back to what you should do now (save) to reach your desired future.
DRAFT:
Bill and Helen Smith are married.
Bill is 40 and Helen is 35.
Bill is a full time financial advisor and makes $95,000 annually. Meanwhile, Helen is a full time accountant and makes $65,000 annually.
They own their own house which they both bought 10 years ago.
Both Bill and Helen agreed not to have any kids, hence, have no dependents.
Bill would like to retire at the age of 65 and Helen wishes to retire at the age of 60.
Their main financial goal is to ensure that they are financially secure during their retirement
years. Meanwhile, they still want to enjoy their lives in the present.
They plan to have $500,000 set aside for retirement.
Career Planning and Development:
· Although both Bill and Helen are currently holding good paying careers, they should re-evaluate them and benefits that come with them
· If either one, or both desire career advancement and professional growth they should attend professional seminars and/or take continuing education courses
· They should update their resumes, in case they havent already done so, to market themselves to prospective employers
· They should evaluate the work environment and compensation packages of potential employers
Spending Plan/Cash Flow Analysis:
· In order to have a better understanding of their current financial position they should implement a system to maintain their personal financial documents.
· In order to attain long-term financial security and enjoy their future retirement, they should figure out their current net worth statement. They can do so by listing all their assets and liabilities, the difference between the two, will give them their net worth.
1) Net worth can be used to measure their current progress
2) Reduction of their debt can also be an indication of financial progress
· Furthermore, they should implement a spending plan (budget), which would help them to better reach their financial goals
Tax Planning:
· Keep up with the new tax laws through: newspaper, magazines, online sources, RIS sites
· Research tax credits they may qualify
· Make financial decisions that can reduce their tax liability
· Should increase contribution to tax-deferred retirement plans
· Investigate various tax-exempt investments, such as municipal bonds
· Maximize contributions to tax-deferred retirement programs such as IRA, 401 (k) plans.
· Being homeowners they are entitled to itemize interest on mortgage payments
· They should be cautious about basing tax planning too heavily on what they think future tax laws might be. There is a great change that tax laws may never materialize.
Use of Credit:
· They should prepare an inventory of their current credit card balances and monthly payments; also include each account name, account number. By doing so, they can keep track of their credit cards
· Implement a spending plan to minimize the use of credit.(i.e. avoid making unnecessary purchases)
· Should avoid maxing out their credit cards and make more than simply their minimum monthly payments, pay the bill on time and in full. To avoid any late payments fees and not forget the due dates on their credit card bills, they should pay them online.
· Monitor their credit card spending
· Should shop around for cards with lower APR
· Also, they should obtain a credit report at least once a year through sources available online, such as.annualcreditreport.com/”>www.annualcreditreport.com
Savings and Investment Program
· Compare rates, fees and costs of checking and savings accounts at various financial institutions.
· Should compare the cost and benefits of various savings plans
· Consider various types of CDs long-term or short-term and decide according to the changing economic conditions
· Evaluate the use of their financial services such as an asset management account and trust account
· Opt for online banking to avoid any monthly maintenance fees, also, this will allow them to easily track their daily spending
Changes in Housing Situation:
· In order to reduce their mortgage balance, they should make additional principal payments. This should be achievable, considering that they dont have any kids, and dont have to worry about making any contributions to the Education Savings Account for the college education of children.
· They should consider refinancing their current mortgage with a lower interest rate
· Should monitor changing interest rates by reading the real estate section of their local newspaper, if not daily, at least 3-4 times a week. They can also sign up for daily or weekly rate report online, through: .mortgagenewsdaily.com/mortgage_rates/”>http://www.mortgagenewsdaily.com/mortgage_rates/
Major Consumer Purchases
· Put enough money aside, to replace major items, (i.e. vehicles, furniture, appliances), as needed
· Should evaluate several stores and brands when making major item purchases
· Compile a list of online and local shopping locations that provide the best value and conduct a unit pricing comparison.
· When planning to purchase or lease a new car, they should consider new-car dealers, used-car dealers and should negotiate to obtain a lower price
· They should determine whether it will be more beneficial to them if paying in cash or financing. If they decide to use financing they should consider loans from credit unions, banks, and other financial institutions.
Insurance Needs
· When purchasing for home, auto, health, life and disability income insurance, they should determine how much coverage they need
· Should prepare an inventory of their personal belongings
· They should compare the cost of home, auto, health, life, disability income insurance, from several insurance companies
· In order to reduce insurance costs, they should consider a higher deductible.
· When purchasing home insurance, they should base their home insurance coverage on the amount needed to rebuild or repair their home, (replacement cost value).
· When deciding to purchase for health insurance, they should compare costs of several health insurance programs such as Blue Cross/Blue Shield, preferred provider organizations, etc.
· Should consider purchasing Disability Income insurance, which provides payments to replace income due to the inability to work as a result of an unexpected disability.
· Should consider purchasing life insurance coverage to protect each other from financial losses, in case one of them dies
· Should decide between different methods of life insurance and choose the one that better meets their needs, considering that they dont have any kids they should go with the DINK Method.
