Personal Financial Incentives - Assignment Example

Continuing Case - (Vicki Rococo/Treble) Name: Tutor: Subject: Date: Table of Contents Introduction 2 1.Personal Financial Data 3 2.Setting Personal Financial Goals 3 3.The use of Time Value of Money to Attain the set Financial Goals 4 1.Financial Documents and Record-Keeping 5 2.Development of a Personal Balance Sheet 5 3.Developing a Personal Cash Flow Statement 6 4.Developing a Personal Budget 7 1.Setting up Investment Goals 7 2.Evaluating Risk for Investments 8 3.Assessing Corporate Bonds 9 Conclusion 10 References 11 A REPORT ON PERSONAL FINANCIAL PLAN SHEET USING THE CONTINUINING CASE OF VIKKI/TREBLE CASE Introduction Success is usually determined by setting targets to achieve. To attain the set goals, there is a need to formulate a plan. Planning enables one to know the activities to undertake regularly to attain the set targets (SE Regenbogen, CM Veenstra, 2015). Personal financial goals are also goals set to achieve certain financial objectives. Most of the financial goals set are considered to be long term. Personal financial goals may include purchasing a new car, buying a bungalow or even paying students loans acquired. A personal financial plan sheet assists one in achieving the set personal goals for a specific period (A.Drexler, G Fisher, 2014). This report will analyse a continuing case of Vikki and Treble by application of the personal financial plan sheet in attaining their set personal financial goals. Case One (chapter one, page 27) 1. Personal Financial Data In this case Vikki Rocco has just graduated from college and she is not that financially stable. She has both short and long term personal financial goals to achieve. She has also decided to pay a rent of $200 per month until she is out in a year’s time. First she needs to create a directory of her personal financial information by filling the personal financial data sheet. She needs to understand her dependants in this case her parents (Dave and Amy aged 47 and 45 respectively). She can also contact any financial planning experts like for instance a banker for financial planning aid. She will also need to talk about the major priorities concerning finances in the household with her parents. For this matter she signs a contract with the parents to pay the house rent. 2. Setting Personal Financial Goals Vikki has to set her financial goals to identify the goals to create a day-to-day action plan in their execution. She has to determine the specific goals while basing on the personal and household needs and wants. In this case, her personal needs are to begin to pay her existing student loan and also her credit card debt amounting to a staggering figure of $2000. Payment of the house rent is necessary, and Vikki volunteered to pay it. She has also decided to start investing for her retirement. She will have to identify both her short-term and long-term monetary goals. For instance, in this case, her short-monetary goals are to pay-off her credit card debt and also to pay the household’s family rent. Her long-term monetary goals include payment of her student loan and also paying for her retirement benefits scheme. She will have to formulate the amount required to undertake the set goals. She has to accomplish the set financial goals depending on their priorities given. Calculation of her savings will be necessary to attain her set financial goals. She needs to put in consideration economic trends that may affect her spending and saving for the future. 3. The use of Time Value of Money to Attain the set Financial Goals Calculation of future and present amounts is necessary for attaining the personal financial goals set (CP Guthrie and CM Nicholls, 2015). Vikki has to use the Time Value of Money in determination and calculation of the amounts required to make her financial decisions. She will have to use some hardware and software such as a calculator, spread sheet software or even an online calculator in the calculations and determination. Various calculations on Time Value of Money may assist her in her calculations. Calculations on the present value of a series of Deposits are usually helpful in the determination of the amount of cash to be regularly withdrawn. She will require these calculations to withdraw monthly fee for rent and servicing her car. She will also need to calculate her present value of a single product to determine the amount she will need to deposit in her retirement benefit that will grow to her coveted value. However, Vikki may have challenges when executing her financial goals. The main challenge may be the overstretching budget now that she is paying the household rent and also the student’s loan. This can make her have issues when paying her retirement benefits scheme since her net pay is not that huge. Case Two (Chapter 2, page 70-71) 1. Financial Documents and Record-Keeping Keeping of records and important financial documents is an essential undertaking in attaining the set personal financial goals (E. Mantzari, F Vogt, Shemilt, Y Wei, 2015). A system needs to be created for maintenances of personal records and also documents. In our case since Vikki is overstretched in her undertakings and need to employ a new system to keep her records and even documents. Using the Personal Financial Plan Sheet, she can develop files for the main categories of her documents. She needs to identify the appropriate location to place the records accordingly. She can subdivide the categories as follows; money management, employment, tax, consumer credit, housing, insurance, investment and retirement records. This will ease up her access to her records and documents. For instance, she can place her work benefits envelopes in the employment file records category and her credit card credits in the consumer credit records and files. This will assist her in accessing the required document and record when the need arise. 2. Development of a Personal Balance Sheet A balance sheet is very essential in ascertaining the financial position of organizations or even people (S. Albrecht, A Bonti, J Dhaliwal, 2014). There is a need to determine the assets and the liabilities owed in order to determine the net worth of an organization or even for a person. A personal Balance Sheet can be used to determine the financial position of an individual. For our case, Vikki needs to use the Balance Sheet to evaluate her net worth taking considerations now that she is preparing to move into her apartment and has begun paying off her existing student loans. She will have to include expenses of her apartment’s rent and the student loan in her liabilities. She will have to list her current assets and add them and then subtract from her total liabilities to evaluate her net worth. There are categories of assets, in this case, i.e. liquid, possessions, investment and many others. Therefore, she will need to categorize the asset and the liabilities accordingly (whether current or long-term liabilities) in her calculations. For example, her student loan is a current liability while her payment to her retirement benefits scheme is a long-term liability. Comparisons of the obtained net worth with the previous ones is necessary in the evaluation of the financial improvements. 3. Developing a Personal Cash Flow Statement A Personal Cash Flow Statement is important in undertaking the personal financial activities (CP Guthrie and CM Nicholls, 2015). It assists in maintaining a record of both cash inflows and outflows of an individual for a month or three months. Vikki needs to record the cash inflows and outflows transacted within a period of one to three months. She can classify the cash inflows in terms of salary and other incomes. This will assist her to evaluate her total income within a certain duration. Cash outflows may be categorised as fixed and variable expenses. In this case the fixed expenses Vikki has to pay include; her student loan, her credit payment and rent of her new apartment. The variable expenses of Vikki include mostly of her basic needs such as food, clothing, water, entertainment and others. She will have to sum up all her total cash inflows and then deduct from the cash outflows obtained by adding both the fixed and variable expenses. Surplus and Deficits are also included in calculations of cash inflows and outflows. Emergency fund savings may be included in the allocation of her surplus in this case after calculating both the total cash inflows and outflows. Revision of expenditures is also necessary for this calculation. To prepare a budget Vikki, will need to assess her spending patterns from the calculations of cash inflows and outflows. 4. Developing a Personal Budget For comparisons of the projected and actual spending, a Personal Budget is necessary (JS Mizell and KS Berry, 2014). Vikki will have to develop a Budget for one to three months. From her Cash Flow Statements, she can predict her spending and even keep her records for actual spending. She will have to classify her budget in terms of incomes and expenses incurred. Expenses will have to be evaluated as whether fixed or variable. The emergency fund included in the Cash Flow Statement need also to be included but in this case as a saving. The projected amounts are compared with the actual amounts to determine the variance in percentage. From the Personal Budget, Vikki will have to assess the appropriateness of her budget depending on her present financial situation. She will also need to determine whether her budgeting activities are assisting in attaining her Personal Financial goals in her Financial Plan. Case Three (Chapter 11, page 381-382) 1. Setting up Investment Goals Establishing investment goals is very important in attaining personal financial goals for the future (JS Mizell and KS Berry, 2014). Investments may be short or long term depending on the program. Since Vikki and Treble are married and have three children i.e. 10-year old Molly and 3-year old twins Tyler and Caleb they need to invest to secure their future. There has been a raise of expenses since Molly has started taking lessons, and she also requires a fee of $2000 for her two-week music camp. There has also been needing to refurbish the family’s house. The couple is also thinking for their children’s college fee thus increasing the need for investing. The couple’s investment goals will be to save for their children’s future college fee and to facilitate the raising expenditures, especially for Molly. Their investment goals are different to Vikki’s Parents’ goals Vikki’s parents want to invest to secure their future since they have retired. Possible investments need to be ascertained to achieving the set target. The family members will have to discuss the importance of their financial goals of their investment as a way of determining their financial position. 2. Evaluating Risk for Investments In every investment, there is a need to assess the possible risk. This enables an individual to determine the magnitude of the risk in considerations of the risk tolerance of the individual in attaining the investment goals set. Vikki and Treble in our case need to identify the investments they are considering and the level of risk each investment is associated with. There are different types of risks depending on the level of risk i.e. high, moderate or even low. Before indulging in any of the investments, they need to determine the type of risk which may occur and thus act accordingly. They will also determine the market risk of each investment depending on how it loses market value. Understanding the economic trends is also important in determining the choice of investment basing on the level of risk. Suppose Vikki and Tim had started investing after college they would have considered certain steps to undertake. First they would have to understand the goal for their investment like securing their children’s education in the future. Secondly, they would determine on which portfolio to invest in and the amount of capital required for the investment. Finally, they would have needed to evaluate the level of risk associated with the type of investment. 3. Assessing Corporate Bonds Evaluation of corporate bonds is essential in the determination of whether a specific bond can assist in achieving the investment goals of an individual (CP Guthrie and CM Nicholls, 2015). The evaluation is characterized by three categories; (1) information on the particular bond, (2) the basics of the bond, and (3) the firm’s financial performance. In the information category, the couple will be required to determine the firm’s name, its email address, and the phone numbers. They will also have to understand the services or products they intend to offer. Bond basics will entail issues on interest rates, maturity, the face value and many more. The financial performance of their firm will be evaluated basing on their projected and actual earnings per share. It will be recommendable if the couple decides to invest in their fixed college savings account to secure their children’s future education. They may also invest in their house as a way of updating it. Their investment portfolio will be different to Vikki’s parents since Vikki’s parents are already settled and have no small children to worry about their future education. Vikki’s parents will be more interested in investing in bonds since their needs are less compared to Trebles and thus can wait for the maturity of the bonds for a longer period. Conclusion Personal Financial Plan Sheet is essential to achieving set personal financial goals (Hills and CJ Asarte, 2015). It is important to start planning early as depicted from case three (the couple of Treble and Vikki). This helps one to attain their financial goals earlier as portrayed by the couple when they want to invest to secure their future college fee of their small children. It is important to note that financial goals are not specifically attained by setting them. They require execution through formulating a financial plan to achieve them. Therefore, if a personal financial plan is followed to the letter the goals will be achieved. References A.Drexler, G Fisher (2014) “American journal on personal Finance”. E. Mantzari, F Vogt, Shemilt, Y Wei (2015)-“Personal Financial Incentives”. Volume 75, June 2015 pages 75-85. SE Regenbogen, CM Veenstra (2015)-“the Personal Financial Burden Complication”. Pages 28-31. S. Albrecht, a Bonti, J Dhaliwal (2014), journal on “Smarter Financial Life”.pg 56-67. JS Mizell and KS Berry (2014),” money Matters”. Pages 20-43. CP Guthrie and CM Nicholls (2015) Journal of Accounting on “The Personal Budget Project” pages 112-134. Hills and CJ Asarte (2015) journal on “Achievement in Personal Finances”. Pages 78-90. "Personal Finance”. Investopedia. Retrieve 8 June 2012. "What is Personal Finance?”? Practical Financial Tips. Retrieved 8 August 2014. "Financial Planning Curriculum Framework”. Financial Planning Standards Board. Retrieved 10 May 2015. Read More