Personal Financial Plan - Essay Example

My Personal Financial Plan Semester Word Count: 2,600 (10 pages) TABLEOF CONTENTS Stage 2……………………..…………………..…………………..……………3 Short-Term Goals..…………………..…………………..…………….3 Mid-Term Goals..…………………..…………………..……………...3 Long-Term Goals..…………………..…………………..…………….4 Stage 3……………………..…………………..…………………..…………...4 Budgeting……..…………………..…………………..……………….4 Time Value of Money……..…………………..…………………..…..5 Asset Protection……..…………………..…………………..………...6 Debt and Credit……..…………………..…………………..………...7 Savings……..…………………..…………………..…………………..8 Investing ……..…………………..…………………..………………..8 Estate Planning…………………..…………………..………………..10 References……………………………………………………………………..12 Stage 2: Identify short-term, mid-term, and long-term goals. Rank your goals in order of importance as they relate to the financial resources available and expected. Estimate the financial commitment for each goal. Short-Term Goals My short term goals are to continue to stay employed, even if it is a part-time job, so that I can be viable in the job market in the future. I know it may seem like a long way away, but pretty soon I will be required to be in the work force. According to Derlien and Peters (2009), “A large service sector seems to be an essential condition for the development of high levels of part-time work” (p. 116). Part-time work is nothing shameful, and in fact this type of work should be valued. Someone who is working part-time while going to school is at least making an effort to rise above the status quo and save some money while getting his or her education. This is both a noble and valiant effort. Other short-term goals include staying in school and finishing my education so that I can get into the college of my choice. I have various other short-term goals, but for right now my main goal is to graduate and focus on that. I have plenty of time to decide where I want to go to school in the future, so another one of my short-term goals is getting wonderful grades. I also hope my extracurricular activities and service in the community will help bolster my application to my top five colleges. Mid-Term Goals My mid-term goals include saving up for an emergency fund. According to Underwood (2010), “The primary purpose for having an emergency fund is to be able to cover any emergency situation” (p. 55). Renowned financial expert Suze Orman, who is popular for having appeared on Oprah numerous times, always touted the importance of having at least three to six months’ worth of savings stashed away for a rainy day in the event that an unforeseen disaster or problem might occur. According to Gitman, Joehnk, and Billingsley (2013), Examples of emergency funds include “…[c]ash on hand or in a checking or savings account, money market deposit accounts, money market mutual funds, or certificates of deposit that mature within 1 year…all examples of liquid assets” (p. 44). Long-Term Goals For my long-term goals, I’ll support my wife, and have more children, if that’s in the future for me. I am not sure what my occupation or income will be long-term, so that is why I am saving up enough money to help reach my educational goals in college. My initial goals were to make anywhere from $25 to 40K in my beginning years of entering the work force, hopefully topping out at $40K within my first five years of working. I’d like to eventually make somewhere around $40 to $70K by the end of my chosen career, perhaps more if I work in a technical field of some type. I’m not completely sure what is the long-term career I’d like to go into right now, but I know that I definitely want to be able to provide for myself and my family as time goes on in the future. Stage 3: Consider all factors we have covered in class, including budgeting, time value of money, asset protection, debt/credit, savings, investing, and estate planning. Budgeting Budgeting is an important part of any good financial plan. Therefore, I’ve chosen to be smart with my money in terms of where I am going to allocate what resources. I’ve noticed that we spend $300 per month on groceries, $170 per month on cell phones, and about $100 per month on entertainment. In order to trim our budget a little bit, I’ve decided that one thing I could do immediately to save some extra money to put into an IRA or other savings would be to see if I could shave down what we spend on food by about $25 to $150—whether it be using coupons, eating out less, or perhaps shopping at grocery stores that are less expensive. I know for sure I could cut out about $70 on my cell phone bill because I just found out that TMobile offers a family plan where I can have 3 lines, as well as Internet and texting on 2 of those, for a minimum of $100. I also realize that I could probably either reduce or eliminate our entertainment costs by $50 or so by maybe choosing a cheaper cable provider and doing some cost comparisons across companies. Although I’m pretty happy with the companies and organizations I’m already with, what I am not satisfied with is that I’ve realized that some of the establishments where I do my business may not have been giving me the best deals. Therefore, I realize that even to reduce all these three bills by the minimum would give me an extra $145 in order to either save or invest. That is an extra $1,740 per year that I could be saving just by making very minimal changes to my budget. That alone would be enough to sock away money into an IRA which would be an invaluable investment for the future. Time Value of Money There is no guarantee with the stock market, but you can estimate that you should make, on average, at least a 30% return over the life of your stocks—which is common knowledge. It really depends upon what has happened before in the past. The time value of money is basically focusing on the fact that the money that you can invest now is money that will grow over the course of a set period of time. Therefore, the more time in advance that you can manage to get into savings and investing—which we will delve into a little bit later—is a huge advantage compared to people who don’t have access to the markets yet at this point. As a result, being able to get involved in investing and so forth at an earlier time almost guarantees that one will make money from one’s money. With my current income (with my wife, child, and myself combined), we make on average $82K per year. This is substantial enough to warrant getting involved in savings and investing on a level that will do us a huge service in the future by having taken these steps towards financial solvency at an early stage. I’ve been forward-thinking all my life, and making sure that my budgeting and planning are fiscally sound, I feel, are great steps towards making my financial future a viable one for myself and my family, for several years. Asset Protection In terms of asset protection, we have roughly 2300 dollars in cash, cash-on-hand, and savings. While we have financial assets totaling about $27K and $57K in other assets, I would personally feel better if the major liability of the Mazda were out of the way. After all, that is a $30K investment of sorts. What I am thinking is that I could potentially sell items on eBay or do writing online content for extra money to contribute towards paying off the monthly payments for the Mazda. I personally dislike having a liability of $30K, although, admittedly, it’s important to have the brand-new car, seeing as how I have a wife and child I’m responsible for and I believe they deserve only the best. That being said, though, I am going to try to pay this debt off as quickly as possible by taking whatever extra I can and putting it towards the payment of the car. I will start doing that as soon as possible, but only after I have put together an emergency savings of three to six months for my family just in case any kind of financial emergencies should arise. Since we have insurance, I’m not too worried about assets being protected beyond that. One thing that I am careful about is that my identity is protected as much as possible and that I don’t give away too much information online that is unnecessary. I don’t want to be the victim of identity theft or some other such fraud, as that can definitely majorly curtail one’s finances. This leads to my next point. Debt and Credit Many people have problems with credit card debt. According to Kinkoph (2003), “Credit card debt is a serious problem these days, so keeping tabs on your credit card spending is increasingly important to good financial health…” (p. 140). Luckily, I’ve managed to keep credit card debt either reduced or completely eliminated to the extent where it doesn’t interfere with my yearly budget. I’ve found that it seems to be good, sound advice to have a cash method of accounting, and that way I always know how much cash I have on hand. The only real liability I have in terms of debt is the $30K we have to pay off on the Mazda. This concerns me, but only slightly. If I didn’t have the Mazda to pay off, it’s very possible that my credit could actually suffer, because in order to establish and maintain credit, one has to use it. So, I am using mine. I think the Mazda is an excellent investment because, although it will depreciate over time, after we are done with its use, it still might be viable to be sold in the event that we want to make more than our return on investment (ROI) with the car. I’m pretty sure that we will be able to get usage out of the car to be able to go to work and other commitments for at least a half a year, which will more than compensate us with a return on investment for the life of the car. If we really feel that we want to make even more money, we can choose to sell the car in later years for people who might want a starter car that is still newer but used. So, as you can see, I’m thinking about the long-term future in terms of the Mazda being an investment as well as an asset. We really don’t have much debt to speak of other than that, for which I’m very grateful. In terms of credit, our credit rating is pretty good, all things considered. I’m happy with our credit score and also our FICO score. Hopefully we will be able to move into a newer and larger living space once our child gets a little bit older. Savings We have almost $2,000 worth of liquid assets in our checking and savings accounts combined. Savings are important to me because I realize that it’s good to have cash-on-hand just in case of an emergency. Liquid assets can take several forms, although I now realize—since I’m older—that cash is accepted almost everywhere. This is why I prefer the cash method of accounting, which I’ve mentioned earlier—but never quite explicitly explained before what were my reasons for doing so. I’ll elaborate upon that point a little bit more now. Most major successful businesses—and nations—run on the method of cash accounting. For example, in China, most businesses—a majority—run on the method of cash accounting. This means that if the customer cannot pay in cash, there is no business transaction to be done. Having a good amount of savings stored away can ensure that, for example, if our checking account needed a little extra padding for the month—that this would not be a problematic issue. It’s important to have a good amount of savings stashed away just in case one’s budget needs a little bit extra at the end of the month, as a fail-safe. Investing Investing is an important part of making money and staying financially solvent. For example, having invested in Microsoft years ago when the stock was $19 dollars per share would have been a good idea, because now the stock is at $39 dollars per share. That is nowhere near a substantial enough jump in order to substantiate having only bought one share. However, if I had been able to buy 1,000 shares at, let’s say, $20 per share, and then it went up to $40 per share, I would have doubled my investment by a sum of $20,000. That may not seem like a lot, but it all adds up when push comes to shove. Now, what is currently the word on the street is that Twitter is not a good investment. Rather, it is Facebook that is garnering all the attention at roughly $60 per share. It’s unclear at this point what Facebook’s long-term financial strategy is, but as long as it has an initial public offering (IPO) that is reasonable, I’ve been thinking about buying into the social media giant as a method of increasing my own financial viability long-term. This is not to say that Facebook is indeed going to make me a millionaire. However, if one looks at the current stock price of Google ($527 per share), that has gone down significantly from a former high of about $600 per share. Even so, even a moderate amount of investing in Google could make someone incredibly wealthy were they only able to buy at least 10 shares, for example—which would equal roughly $6000. But, if those shares doubled in price, one would stand to make an extra $6000. That alone would be enough to buy another new or used car for $6000, which could replace the BMW 525i at some point if we wanted to switch that car out. At any rate, making good financial planning decisions obviously give someone options that they might not have normally had. So, in that vein, I’m very happy to have made many of the decisions that I already have with regards to my financial planning. Of course, there are a few budget cuts here and there that I could make, but overall I’m pretty satisfied with the job I’ve done managing my money up until this point in the future because I can see the result of these successes every day. I have a great family life and much of that is due to my smart financial planning and wise business decisions that have positively impacted myself and my family, and which will continue to do so, for years to come. Estate Planning Estate planning is an important piece to securing one’s financial future. At some point, myself or my spouse may not be here, so I want to make sure I have everything read to go for my family in the event that something unfortunate does occur to either my spouse or myself or both of us. We want to make sure—at some point in the future, not saying necessarily tomorrow—that all of our assets and liabilities are taken care of and so that our child and any future children we may have will not be burdened by debt or any other such cumbersome issues that may happen in the event that one or both of us would pass on. As for ourselves, me and my family are deciding to hold off on estate planning at this time, although we definitely do have life insurance. We’ve decided that we will wait for a little bit before creating a will—again, I am not saying that we will wait for a long time before doing this, but we might wait a little while due to the expense incurred for hiring a lawyer to draft the will, and so forth. I am not sure when we will take care of our estate planning, but we will make sure it is taken care of sooner rather than later. I would much rather have all of our financial “ducks in a row” now rather than wait till some point later on in the future when it is too late. Not only that, but I don’t want my child and/or future children having to haggle with other family members over whom owns what after we have been long gone. It would be way too much undue stress on my family and I don’t want to put them through that, and I’m sure neither does my spouse. So, we are mindful of these facts, it’s really just a matter of doing it that is the issue now. As things stand now, however, I have to find the time and resources to worry about estate planning, which is not a major concern for me right now. Right now I’m concerned about making monthly payments for the financial obligations I already do have, and worrying less about things in the future which might not occur for quite awhile yet. REFERENCES Derlien, H., & Peters, G. (2009). The state at work, vol. 2. US: Edward Elgar Publishing. Gitman, L., Joehnk, M., & Billingsley, R. (2013). Personal financial planning. US: Cengage Learning. Kinkoph, S. (2003). Easy Quicken 2004. US: Que Publishing. Underwood, A. (2010). Building your financial future even to the point of giving. US: Author House. Read More