Read this Personal Financial Planning case study to learn about financial and insurance needs of a young married couple with one child. Get expert advice on managing funds, securing future, and effective risk management strategies.
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1 Running head: PERSONAL FINANCIAL PLANNING Personal Financial Planning Student Name University Name
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2 PERSONAL FINANCIAL PLANNING Case Study Background Eliza and John Smith are a young married couple with one child. They need Insurance cover for themselves.They do have some insurance cover themselves, however they are not sure if it is adequate or suitable for their needs. They need a help of from financial advisor regarding their financial and insurance needs. B. & C. Personal Details and Personality Profile ClientClient 2 TitleMrsMr SurnameSmythSmyth Given and preferred namesElizaJohn Age3236 SexFemaleMale SmokerNoYes Expected retirementage60Probably around age 65 AttitudeConservative natureGrew up in a humble household From the above personality profile, it can be inferred that the age of John is 36 and age of Eliza is 32. John is planning for retirement at the age of 65 and Eliza is planning for retirement at the age of 60. John is a smoker and Eliza is a non-smoker. However, the expenses incurred by the couple is on the higher side. D. Dependents The couple has one boy child who is 5 years old and studies in a school. However, his parents have plans to carry out his studies based on educational loan. In addition to this, both John and Eliza has to pay his school expenses.
3 PERSONAL FINANCIAL PLANNING E. Current Situation Eliza and John have their own home and then bought it around 4 years ago. The net worth of their home is $900,000. However, they have a mortgage of around $540,000 with an interest rate of 4.5 %. The house is a combination of 3 bed rooms. F. Regular expenses Mortgage$500,0 00 School fees$10,00 0 Education loan5000 Personal insurance2800 Car insurance0 Home building/Contentsinsur ance 8,500 Health insurance25000 Living expenses50000 Holidays10000 House maintenance10000 Other1000 Child care3600 Donations500
4 PERSONAL FINANCIAL PLANNING Total expenses$626,4 00 From the above table, it can be inferred that the total expenses incurred is on the higher side. This is not at all a good sign for the client as they need to curtail their expenses. It can be seen that majority of the expenses due to higher amount of mortgage loan. G. Total Assets House900000 Jewalry10000 Savings Account25000 GIC10000 Vehicle10000 Total955000 H. Current Employment Situation John works as a full time engineer in an export import firm in Canada for the past 10 years. His salary is around $175000 pa. He often goes for business trips in other countries and has earned quite a lot of reputation in the organization. Due to this reason, his expenses is on the higher side. This also has a direct impact on their total savings as well. Further, it can be also inferred that it had a direct impact on the working cash flows of John. It can be also inferred that John is very casual in controlling the expenses. He tries to lead a lavish life and is not at all concerned with the cash flow of his wife as well. This can be a cause
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5 PERSONAL FINANCIAL PLANNING of concern for the family including his child. John also has two credit cards which he uses frequently. He aims to improve his lifestyle year by year; however, he is unable to control his savings. He has created a pension scheme and that is not enough to control his present scenario. Apart from this, he has other expenses to bear for himself as well as his family. However, he has a good amount of net worth On the other hand, Eliza is working as a marketing executive on part time basis. She earns around $70000 pa. However, she also feels that she needs to change her job and start-up her new business consulting service from her home. She plans to retire at the age of 60 and her major aim in life is to have a secured income. I.Pension Savings AmountUse/investmentProduct provider $3000Defined Contribution Pension PlanPrivate $4000Balanced Managed FundManaged Financial Services $3000Growth FundXYZ Financial Services From the above table, it can be inferred that the total pension savings for the couple is around 10,000. This amount will help them to secure their income and also will helped them to manage the future of their child. The pension savings is divided into Defined Contribution Pension Plan, Balanced Managed Fund and Growth Fund.
6 PERSONAL FINANCIAL PLANNING Statement of Net Worth Statement of Net Worth AssetsJohnElizaTotal Savings Account2000 0 50002500 0 Total Non-Registered Assets2000 0 50002500 0 Registered Assets RRSP1000 0 01000 0 Personal Assets House9000 00 9000 00 Jewalry1000 0 5000 0 Vehicle1000 0 1000 0 Total Personal Assets9100 00 1000 0 9600 00 Total Assets9400 00 1500 0 9950 00 Liabilities Mortgage5400 00 05400 00 Credit Cards1500 0 1500 0 3000 0 Student loan250025005000 Total Liabilities5575 00 1750 0 5750 00 Net Worth3825 00 - 2500 4200 00 From the above table, it can be inferred that the net worth of Eliza is on the negative side. This is not at all a good sign for the couple. However, the Net worth of John is on the higher side.
7 PERSONAL FINANCIAL PLANNING Deficit From the above Net worth Statement, it has been observed that Eliza is facing deficit in her expenses. However, the amount of education loan is about to increase. Therefore, the couple may be in deficit in the near future. Existing Budget Cash Flow Statement Income/Expenses/SavingsJohnElizaTotal Salary17500070000245000 Gross Income17500070000245000 Less Source Deductions350001400049000 Net Income14000056000196000 Total Expenses60000026400626400 Net Income Available for Savings-46000029600-430400 Savings RRSP Contribution10000010000 Total Savings/loss-45000029600-420400 Proposed Budget Cash Flow Statement-Projected Income/Expenses/SavingsJohnElizaTotal Salary175000100000275000 Gross Income175000100000275000 Less Source Deductions350002000055000 Net Income14000080000220000 Total Expenses10000050000150000 Net Income Available for400003000070000
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8 PERSONAL FINANCIAL PLANNING Savings Savings RRSP Contribution100000 Total Savings10000010000 Unallocated Cash Flow300003000060000 Explicit Goals There are several goals and objectives that the clients have. These are as follows:- To minimize the expenses which are causing a negative balance in the budget To remove the mortgage fund as soon as possible To manage and increase their savings for their retirement and pension purposes. Apart from this, the couple needs to have an effective risk management plan in order to meet their objectives. The couple needs to prioritize their objectives based on short term and long term objectives.Based on the given time frame, the couple can attain all their necessary aims and goals. Implicit Goals Apart from the above explicit goals, there are several other implicit goals which have been identified for the clients. These are as follows:- The client’s needs proper management of their funds and assets They need to adopt effective risk management strategies by opting for personal insurance Both the parties need to secure their future as their child is very young. Gantt chart
9 PERSONAL FINANCIAL PLANNING In order to attain the aims and objectives, it is important for the client to create a Gantt chart that will help them to attain their desired aims and objectives. Goals/need/objectivesTimeframeDollar value Protection of income of both the parties 2 years Lowering the expenses4 years Securing the future25 yearsTill retirement Management of funds2 years Mortgage fund3 yearsEnd Education and Retirement fund33 years$600,000 Risk Management strategies of insurance 10 years Income protection30 years