Personal Financial Planning

Personal Financial Planning

Introduction

Financial plans centered on every household’s unique circumstances, desires, and objectives are necessary in accomplishing short and long term financial goals as well as determining future financial position. Financial planning entails a couple of steps; set goals, organize financial records, preliminary budgeting, determine spending habits that necessitate change, estimate projected income, set duration for goal accomplishment, extended budget creation, determine income strategy for goal sustainment, commit to financial plan, and reframe financial plan when it deems necessary.

Set goals

Matthew needs to set all his goals depending on present, near future and distant future expectations of his lifestyle and that of his family. Intellectual goals of the family concern sending the two 7 and 3 year-old children to school as well as Mr. Matthew’s MBA class that cost $300 per month. The 3 year-old is expected to join school next year and his fees will be $150. In total the expected intellectual goals for any month next year will be $600, with $7200 ($600*12) per annum. There are long-term future goals of further education of the two kids that will cost more than current cost. Mr. Matthew and Kelly also have a residence goal of saving up for a down payment of a house worth $1,000,000. Mr. Matthew wants to buy a car worth $15,000 which is a medium term goal. Considering he wants to retire after 25years then he has to set a retirement financial plan that will ensure a comfortable life for him and his family.

Organize financial records

Matthew needs to create a file concerning his financial records. That comprises a record of all his tax payments, his insurance information with Co Medical and Disability, annual bonus of $2,500, his basic salary of $30,000 per annum which is $2,500 per month, savings plan for down payment of house and car, monthly expenses of food, electricity, and transportation of $800, rent expense $200 per month, school fees $450 per month and his expenses $100 per month.

Preliminary budget

Mr. Matthew should write out his budget to determine his spending habits monthly and annually so as to make relevant adjustments for accomplishment of his goals.

Annual salary=basic salary + bonus

=$30,000 + $2,500

=$32,500

Monthly basic salary=$30,000/12months

=$2,500

Expenses

Monthly expenses=fees (7 year-old + Matthew’s) + rent + (food, electricity, transportation, etc)

+ Matthew’s personal expenses

= ($150 + $300) + $200 + $800 + $100

=$1,550

Monthly savings=Basic monthly salary – Monthly expenses

=$2,500 – $1,550

=$950

Annual savings=$950 * 12=11,400

Rough estimate of his expected annual savings not considering the amount he pays Co Medical and Disability, any miscellaneous and emergency money is $13,900 including annual bonus of $2,500.

Spending habits

Mr. Matthew’s spending seems very well utilized which just the basics like food, electricity, rent consuming his income. However, Matthew should change his insurance plan to include his family so as to avoid unnecessary emergency payments.

Analysis

From analysis of his only income, considering his future goals of buying a car, house, and education fees then his mere savings of approximately $950 cannot sustain him.

Assume he saves $500 every month for purchase of car:

Car cost=$15,000 annual savings for car=$500 * 12=$6000

Duration of saving=$15000 / $6000=2years 6months.

It would take him 2years and 6months to purchase the car.

Matthew would then have 22years of the 25working years to contribute toward a retirement benefit plan and savings plan for purchase of $1,000,000 worth house. Even if he was to save the entire $950 monthly leading to $11,400 annual savings and add bonus of $2,500 to total to $13,900 for purchase of the house for 22years then he would still not be able to purchase it.

Conclusion

Their income is a deficit considering their increasing responsibilities and future goals. They need to consider a savings plan for the education of their children. Therefore, they have to come up with alternative sources of income like a home business that Kelly can manage, an investment plan, and or any inheritance. They should henceforth stick to the financial plan they form after increasing their sources of income to ensure they achieve all their goals in the set duration of 25 years.

Reference

Kiyosaki, R. T., & Lechter, S. L. (2011). Rich Dad Poor Dad: What The Rich Teach Their Kids About Money That the Poor and Middle Class Do Not. New York: Warner Books.