Personal Financial Planning - Case Study Example

Insert Personal Financial Planning Financial planning is a fundamental concept that is crucial is making important household as well as business decisions. It is important to understand the tools that govern financial expenditure so as to identify areas that need improvement. This is in effect to either raise finances for projects that require more finances. In strict terms, the above practice is called budgeting. It involves allocation of the otherwise meager resources to already identified needs.

This helps in managing of available funds for appropriate use. This is done by doing a comparison of the income generated in a particular period with the expenses accrued in the same period. This is normally a good and an established way of checking if there is surplus cash for investment purposes or deficits to be seek external funding (Gitman, et al. 247). This paper therefore seeks to analyze the income of an average household in comparison to the actual expenses incurred and give suggestions to the issues raised.

From the data given, Mathew has a gross monthly income of $2500. This is the disposable monthly income and can only be budgeted for on a monthly basis. It is evident that he enjoys a medical cover provided for by the company and covers him alone. Another benefit accrued from his gainful employment is the bonus given annually which is equal to his one month salary. Considering that Mr. Mather wants to purchase a car and has prospects of owning a car, it is prudent to evaluate the monthly expenses incurred in relation to the monthly income.

It is evident that school fees for the elder kid amounts to 6% of the total income. In consideration that the younger kid will be joining school in the coming year, it is prudent to budget a similar percentage towards covering the school fees. The monthly rent paid amounts to 8% of the total income. This is a reasonable percentage of income considering that there are prospects of owning a home. The amount spent on higher education constitutes 12% which is fair given that this will translate to increment in pay once finished.

This can be classified as an investment for the family. The total family expenses for the month constitute 36% of the total income. The remaining amount of $800 constitutes 32% of the income. This amount can be invested in sound financial instruments to generate more income. The amount can also be used to start a small family business for the wife such as a home bakery. In consideration of the above facts it is proper to propose an evaluation of the family expenses and scale them down to 31% of the total income.

The difference can be channeled towards taking a family insurance cover since Mr. Mathew is already covered by the employer. Another important element is to join a home ownership plan where a certain percentage of total income would be for home ownership after 20 years. This would be crucial since it is tax allowable and hence would reduce the tax obligation for Mr. Mathew. Considering that he would like to get a car, it’s worthwhile to note that this would be a liability and would require him to incur other car related expenses.

Nevertheless, the amount obtained from the annual bonus can be used to acquire a car that is economical on fuel consumption. In conclusion therefore, it is very important to operate with a budget since it gives direction on the source of funds and the appropriate allocation. Financial prudence leads to more savings which can be used as security for loans and diversifying of portfolios through investments. References Gitman, Lawrence J, Michael D. Joehnk, and Randall S. Billingsley. Personal Financial Planning.

Mason, OH: South-Western Cengage Learning, 2013. Print.