Financial Plan Formation - Essay Example

Executive summary

The paper investigates Stacey Koh a 26 years old lady who is currently working as a stoke broker in a financial corporation. Stacey receives an annual salary of seventy-three thousand dollars which excludes superannuation. Also, she receives a bonus of 2 percent each year from the total sales she made. Stacey is looking forward to saving and buy a home in the next five years. Besides, he is looking forward to the purchase of a new car worth 20,000 dollars. However, she does not have all the money needed to accomplish goals, and hence, she requires a lot of financial planning to actualize her goals. The following are two core goals that Stacey is longing to achieve:

• To buy a new home adjacent to the superb within the nix five years. The house is estimated to cost her 400,000 dollars.
• To purchase a car worth 20,000 dollars by the end of her second year of savings

Some of the strategies that Stacey will utilize is to put in place financial planning strategy. Secondly, she needs to have a strategy that will help her to learn how to save money so that she can accomplish her goals as planned. Financial plan strategy will demand Stacy to have the personal saving self-discipline that will enable her to meet her targets. Also, she needs to minimize her expenditure so that she can save extra money to accomplish her goals. Selling his old Civic Honda and some of the shares of value will easily help her finance his personal goals of buying a new house and a car within the projected period. The outcomes of her strategy are that she will manage to buy the vehicle and the house.

Personal Information

As indicated In the case study Stacey works in a financial institution as a stockbroker. She has both parents who are advising her to buy a house through her personal and promise to her they will contribute 80,000 dollars at the time of home. However, Stacey does not want any assistance from her parents as she believes that she can manage to buy a house and a car without parental financial support. Stacey is presently paid 73,000 dollars salary each year by the company she is working for. Besides, she is paid a sales bonus which is computed at a rate of 2% of her total annual sales. Moreover, Stacey has 1000 shares from inherence and has a personal saving of 20,000 in her bank account and personal effects worth 10,000 dollars. Also, she has civic Honda car that she uses only on weekends because during the weekdays she utilizes public transport to go to work as part of his saving. She has two objectives which are buying a car within the next two years and a home worth 400,000 within the next five years as discussed. a

Assessment 2 – Financial plan formation

Stacey is currently working as a stockbroker in a finance corporation and earns an annual salary of seventy-three thousand dollars which does not include superannuation. The objectives of this financial plan are to provide 26 years old Stacey Koh with a financial solution that will allow her to purchase a home within the next five years. Due to her financial situation, Stacey can only afford to buy a small house in the suburb outskirt which will cost her estimated 400,000 thousand dollars. At the time of purchase her parents are willing to support her with 80, 000 dollars though Stacey does not need their support. Besides, Stacey is planning to buy a car within the next two years worth 20,000 dollars. Therefore, the financial plan is aimed at providing Stacey Koh with a strategy that will enable her purchase a house. Also, the case study indicates that last year Stacey managed to get a bonus of twenty-six thousand dollars from her sales. It clear from the case study that Stacey is currently spending 300 dollars per week on rent. Stacey has shares worth 10,000 dollars that she inherited from his grandfather about four years ago. She also has a 2001 Civic Honda Car that she usually use during the weekend. The case study further indicates that Stacey is looking forward to financing the house purchase through the selling of shares and personal savings.

To provide Stacey with a financial Plan that could help her meet her goal of buying a car worth 20,000 within two years and also purchase a home worth 400,000 dollars at the end of five years. Some assumptions were made. It was assumed that when other things are held constant, the salary of Stacey Koh will remain constant for the next five years. It was assumed that Stacey might not be able to receive bonus within the next four years. Also, his expenditure excluding rent will be $22,000.00, $18,000.00, $21,000.00, $14,000.00, and $12,000.00 for the first, second, third, fourth and fifth year respectively as shown in the financial plan below. Also, it is assumed that Stacey Koh will be able to make personal saving each year. For instance, in the first year, Stacey will be able to save $128,400.00, while second-year savings will decline to $31,400.00 because by the end of the second year Stacey will use her savings to buy her dream car which was in line with his objectives. After the second year, Stacey will be able to save $75,450.40, $82,991.41 and $85,543.24 in the third fourth and the fifth year respectively. From the financial plan labeled table 1.4, it is evident that by the end of five years Stacey Koh will have saved $483,785.04 excluding the amount that her parent promise to give her to buy the home. Moreover, it is expected that annual bonus from sales will be 2% per annum. Below is table 1.4 showing financial plan summary of how Stacey can manage to raise the required amount to buy the house in the next five years from now.

Table 1.4

Stacey Koh Financial Plan

Stacey Revenues

Years 1

Years 2

Years 3

Years 4

Years 5

Annual Salary

$73,000.00

$73,000.00

$73,000.00

$73,000.00

$73,000.00

last year bonus

$26,000.00

$26,520.00

$27,050.40

$27,591.41

$28,143.24

Contribution by parents at year 5 (Not Included) In home purchase

$80,000.00

Bank Savings

$20,000.00

Estimated personal effects value

$10,000.00

Estimate value of Honda Civic once sold

$5,000.00

Total accumulation from employment superannuation

$25,000.00

Stacey Expenditures

Annual Rent

$3,600.00

$3,600.00

$3,600.00

$3,600.00

$3,600.00

Estimated annual personal expenditure

$22,000.00

$18,000.00

$21,000.00

$14,000.00

$12,000.00

New car to be purchased in year 2

$20,000.00

Estimated savings per Year at the end of each year

$128,400.00

$31,400.00

$75,450.40

$82,991.41

$85,543.24

Net total Cash flows after 5 years saved to finance the house

$403,785.04

Less Cost of the house

$400,000.00

Remaining bank balance after purchase of the house

$3,785.04

Based on the financial plan it can be observed that, if Stacey strictly adheres to this financial plan she will manage to buy a good house and a car based on the stipulated time. The plan will help her purchase a car by the end of the second year and a home worth 400,000 dollars at the end of five years without relying on the assistance of her parents. Besides, Stacey will be left with some saving in her bank account after the purchase of the home. She would have at least 3785 dollars in the bank account which he can use to invest in shares or decorate his new home.

Initial investigation

Based on the Stacey cash flows she need to save at least $80,000.00 per year to accomplish her goals. It is evident that currently Stacey currently does not have any loan or a mortgage as per case study and hence she stands a good chance of accumulating wealth given that she has already completed college and working in a good finical company that pays her well. Besides, she does not have huge financial commitments, and hence she can save as much as possible. Already Stacey has 1000 shares as for an inheritance which she does not have to sell at the moment because her salary savings can help her buy a home and a car without selling stocks. Stacey has stipulated that she does not need any financial assistance from her parents purchase a house because she believes she can afford it without engaging parents. It is evident that the transaction costs such as the legal fee and transfer fee will amount to approximate $3000 which she will finance from the amount that will remain from her bank account after deducting the value of the house she is buying.

Strategy presentation

Based on the analysis of Stacey situation, I would recommend her not to sell shares to buy a house but rather to use her saving. Based on the analysis it is evident that Stacey is making a good sum of money each year from her salary as well as bonuses from sales commission which can help her accomplish her goals within five years without selling shares. She should allow the value of her shares to increase and sell such shares in the future when she would be financing the university education of her children. During that time she would have benefited from annual dividends and also enjoy huge capital gains from the sales of share, but for now, I would strictly recommend her to minimize her expenditure and save adequate money to buy a car within two years and a house. Based on the calculations displayed in table 1.4 it is clear that she can save and accomplish her goals without selling shares. Also, selling her old car will help her to top up some few amounts of money to buy another car. Also, if she manages to purchase a house within five years, she would have saved a lot of money that she spends on rent and use such money to carry out other alternative investments.

Outcome

After the purchase of the home and a car, it was assumed that Stacey was going to save most of her money and increase her expenditure by 10 percent considering that she was now going to have a new car that she will be used to go to work. Below is her cash flow statement one year later after the purchase of a home.

Stacey Cash flow Outcomes after home Purchase

Cash flow Inflows

Stacey Salary

$73,000.00

Other Income

Sales Bonus at 2%

$26,520.00

Cash Outflow

Personal expenditure increased by 10%

$24,200.00

Income tax

$16,000.00

Medicare Levy 3%

$2,000.00

Total Cash Outflow

$42,200.00

Cash Surplus

$57,320.00

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