Personal Financial Philosophy and Guidelines - Essay Example

Start with an introduction with about discussing your personal financial philosophy or guidelines. My personal financial philosophy is to work hard,take risks while young, and use the resources of knowledge and energy on a personal level to get ahead in the world through a career path. I am not interested in staying with one company for more than 2 years at a time during my first 10 years out of college. In this manner I hope to get a variety of job experience and improve my salary through changing jobs rather hoping for raises and promotions within the company. I would prefer to be happy in the office system even if it means taking a little less money in salary or benefits. My concerns over the job market, the economy, and my student loan debt have led me to consider going to school for an additional year and earning a B.Ed. with teaching certificate so that I have a backup employment plan for the future. 1. Financial goals for the next 2 years (or until graduation with the 4 year degree). Monthly budget (show typical month to include a monthly pro-rate as needed (for each year). To some extent you have already done this. You can use spreadsheet following the basic outline of the budgets from worksheet #1 in the workbook. In a footnote add an explanation of any extraordinary items not contained in a monthly budget. After graduating, I have a two year grace period on my student loans to get settled, find a job, and begin building my career. It would make sense to start saving to build a cushion for emergencies and a base of savings to help cover bill payments. I will owe around $20,000 in student loans upon graduation, which I expect to pay off in 8 to 10 years. I have around $4000 in credit card debt from books, clothes, and other living expenses in school that I will need to manage. After graduation, I would like to travel for three months to Mexico and Latin America, and will budget around $4,000 to $5,000 in travel expenses for the trip. I expect to fund half of that through my own work and half through family gifts at graduation. In my first 2 years after college, I hope to receive a job paying in the $40,000 to $50,000 per year working for the company with which I did my internship last year. To date, I have applied but not heard back on my resume. With a budget of $40,000, I will receive around $2800 per mnoth after taxes for my budget: Budget Category: Costs Allocated: Rent $850 Car Payment $435 Car Insurance $125 Utilities $120 Mobile Phone / web / cable $150 Savings target $250 Leisure activities $500 Shopping $400 Food $600 Gas $200 Total: $3620 From this analysis, it appears I will have to cut back on shopping, food, and possibly savings target in order to cover all of my projected costs or get a higher paying job. 2. Financial Goals for the next 8-10 years. Specific strategies to achieve them like income, major expenditures, saving amounts, and investment rate of return of targeted investments. Complete from information in worksheets and display on a spreadsheet for each year. The timing as estimated cash flows; borrowing and saving to get o these goals are the key strategies and should be explained in footnotes or a paragraph or tow. Make reasonable assumptions about your saving rates and return rates on investments – make sure you are compounding. Over the next 8 to 10 years I would like to save enough to buy a house and start a family, as well as travel in Europe and Asia on holidays. I believe world travel is very important despite its relative high cost when compared to other vacations. The amount I can save depends directly on my salary rate, which as yet is unknown. Ideally, I would like to plan for an average of 10% a year raise in salary, but since it is not possible to guarantee this, I will look for salary increases through job change and also use job change as a means of travel to different locations across the country. Simple things like finishing my car payment and reducing insurance costs would help, as would savings and discounts. Based upon my goals, I hope to open an online trading account and gradually build a position in equities in order to learn markets from a young age and build my fortune. Year: Savings target: Equity target: 2011 $3,000 $10,000 2012 $5,000 $15,000 2013 $10,000 $25,000 2014 $15,000 $35,000 2015 $25,000 $50,000 2016 $35,000 $70,000 2017 $50,000 $100,000 2018 $65,000 $125,000 2019 $85,000 $150,000 2020 $100,000 $200,000 Projected End Totals: $100,000 $200,000 3. Longer term plans (10-30 years). This will include contingencies for life events and eventual retirement. What is your basic strategy? Compound your saving rate to get a sense of the funds available. Assume a net rate of 6% (this means about 9% gross, less 3% inflation rate over the 20 years period). Like the Millionaire Mind, Rich Dad or your own Ideas? In my opinion, if it requires $1 million dollars for a family to retire comfortably at 65 and be secure financially, with inflation I will likely have to budget $5 to $10 million for my retirement fund. The last 40 years have likely seen an increase in the amount of the standard pension required and paid. I would prefer to manage my own investments and build a diversified portfolio of stocks that pay dividends to follow in the Warren Buffett model of investing. Savings to me does not return enough but in 10 years time it is possible that we will see an average savings rate of 6%. I prefer equities as an investment as the return is dynamic and related to the work you put into researching and building your own portfolio. I would also like to collect gold and gold coins as a hobby. Nevertheless a 30 year savings plan with interest compounded: Time: Target Savings: Rate: Compound Interest: After 10 years $100,000 6% $79084.77 After 20 years $179084.77 6% $141628.78 After 30 years $320713.55 6% $320713.55 End Total: $574349.12 Source: http://math.about.com/library/blcompoundinterest.htm Consider Probable developments like: job salary advancement, inheritance, birth of children or dependent person, purchase of house, graduate school attendance, moves to another geographical area other events with a material non-routine financial impact. Since my savings total is not sufficient by any means to reach my projected retirement goals, I will need to rely on equity trading as the most important part of my retirement plan. Over the long term, by investing smartly, I hope to be able to manage all of life’s contingencies through financial stability. This could be hit at any time by another crash, and there is no guarantee one can beat the market over the long or short term. ETFs may be an option for me here when investing in the very long term, or by trading leveraged ETFs in a very tight tie horizon. My job and salary advancement, as well as choice in partner and their income, will determine the real estate we can afford, establish our credit rating, and determine what we can provide for our kids, so the budget needs to be well thought out in advance to prepare for all contingencies, this is the basis of risk management. The idea is to show that you have learned and to put numbers together with activities and events. This is the link of worksheet #1 https://www.annualcreditreport.com/cra/index.jsp Read More