CGE17105 Personal Financial Plan: Cheung Family - UOW College HK

This report provides a comprehensive financial plan for Stephen and Linda Cheung, a couple with two young children, outlining strategies for managing their income, expenses, and investments over the next 18 years until their children attend college. The plan considers their current income from Stephen's IT contracts and Linda's teaching job, alongside their annual living expenses and expected inflation. It includes a loan repayment schedule for property improvements and emphasizes long-term savings through a recurring deposit account with a 12% annual return. The plan recommends investing 80% of their annual surplus in this account to secure funds for their children's education and their own retirement, while also addressing risk tolerance and liquidity considerations. The report concludes with recommendations for loan management and investment strategies to achieve their financial goals.

Running head: PERSONAL FINANCE
Personal Finance
Name of the Student:
Name of the University:
Authors Note:

1
PERSONAL FINANCE
Contents
Financial plan:.................................................................................................................................2
Recommendation:..........................................................................................................................14
References:....................................................................................................................................16

2
PERSONAL FINANCE
Financial plan:
The financial plan shall be formulated for Stephen and Linda Cheung after calculating the
expected annual surplus income of the couple over the next 18 years by which time their children
are expected to attend college. Firstly, let calculate the expected annual surplus amount of
income of the couple (family) after considering the income, annual living expenses and annual
inflation rate (Wu, 2015).
The expected total annual income of the couple at present is calculated below:
Particulars Amount ($) Amount ($)
Income of Stephen from It Contracts 1,755,000.00
Income of Linda Cheung 483,600.00
Average investment return (3650000 x
16%)
584,000.00
Total family income (after tax) 2,822,600.00
Though average annual return on investment in China over the last decade and more has been
around 20% still in order to be conservative in predicting the expected net savings of the couple
to correct plan for the future of the family it has been assumed that the expected return to be
received from the current investment portfolio would be around 16% per annum. Taking into
consideration that the annual income of the couple in the first year is calculated below (Saxena,
Phadke & Gopal, 2014).

3
PERSONAL FINANCE
Particulars Amount ($) Amount ($)
Income of Stephen from It Contracts 1,755,000.
00
Income of Linda Cheung 483,600.
00
Average investment return (3650000 x
16%)
584,000.
00
Total family income (after tax) 2,822,600.
00
Taking into consideration the above income in year 1 the expected annual income and surplus
annual income after meeting living expenses is calculated below to correct plan for the
retirement and future requirements of the Cheung family.
Year (A): Family income after adjusting
inflation
(B): Annual
living expenses
Surplus
income (A-B)
1.00 2,822,600.00 840,000.00 1,982,600.00
2.00 2,879,052.00 856,800.00 2,022,252.00
3.00 2,936,633.04 873,936.00 2,062,697.04

4
PERSONAL FINANCE
4.00 2,995,365.70 891,414.72 2,103,950.98
5.00 3,055,273.01 909,243.01 2,146,030.00
6.00 3,116,378.48 927,427.87 2,188,950.60
7.00 3,178,706.04 945,976.43 2,232,729.61
8.00 3,242,280.17 964,895.96 2,277,384.20
9.00 3,307,125.77 984,193.88 2,322,931.89
10.00 3,373,268.28 1,003,877.76 2,369,390.53
11.00 3,440,733.65 1,023,955.31 2,416,778.34
12.00 3,509,548.32 1,044,434.42 2,465,113.90
13.00 3,579,739.29 1,065,323.11 2,514,416.18
14.00 3,651,334.08 1,086,629.57 2,564,704.51
15.00 3,724,360.76 1,108,362.16 2,615,998.60
16.00 3,798,847.97 1,130,529.40 2,668,318.57
17.00 3,874,824.93 1,153,139.99 2,721,684.94
18.00 3,952,321.43 1,176,202.79 2,776,118.64

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PERSONAL FINANCE
As per the information Stephen and Linda require around $2,200,000 to carry out improvements
in the property where they are living. Since the requirement of amount is quite large hence, the
couple should take loan from a bank at 6% per annum to repay the loan with equal annual
instalments within next 10 years. Accordingly, the loan repayment schedule for the loan is
prepared below to be considered while making the recommendations about investments strategy
to ensure the couple have necessary funds required for retirement and education of their children
(Lardy, 2016).
The loan will be taken in next year as the improvements shall be carried out to the property in
next year. The surplus amount of income after taking into consideration the annual instalment to
repay the loan is calculated below.
Year (A): Family income
after adjusting inflation
(B): Annual
living
expenses
(C)
Annual
instalment
to repay
the loan
Surplus income (A-B-C)
1.00
2,822,
600.00
840,000.
00
1,982,600.00
2.00
2,879,
052.00
856,800.
00
298909.5 1,723,342.49
3.00
2,936,
633.04
873,936.
00
298909.5 1,763,787.53

6
PERSONAL FINANCE
4.00
2,995,
365.70
891,414.
72
298909.5 1,805,041.47
5.00
3,055,
273.01
909,243.
01
298909.5 1,847,120.49
6.00
3,116,
378.48
927,427.
87
298909.5 1,890,041.09
7.00
3,178,
706.04
945,976.
43
298909.5 1,933,820.10
8.00
3,242,
280.17
964,895.
96
298909.5 1,978,474.70
9.00
3,307,
125.77
984,193.
88
298909.5 2,024,022.38
1
0.00
3,373,
268.28
1,003,877.
76
298909.5 2,070,481.02
1
1.00
3,440,
733.65
1,023,955.
31
298909.5 2,117,868.83
1
2.00
3,509,
548.32
1,044,434.
42
2,465,113.90

7
PERSONAL FINANCE
1
3.00
3,579,
739.29
1,065,323.
11
2,514,416.18
1
4.00
3,651,
334.08
1,086,629.
57
2,564,704.51
1
5.00
3,724,
360.76
1,108,362.
16
2,615,998.60
1
6.00
3,798,
847.97
1,130,529.
40
2,668,318.57
1
7.00
3,874,
824.93
1,153,139.
99
2,721,684.94
1
8.00
3,952,
321.43
1,176,202.
79
2,776,118.64
The couple should make long term plan by contributing in long term recurring account
which will give 12% annual return compounded annually. By contributing to the recurring
account the couple will be able to save significant amount of money for their future. The
following schedule will help to understand the short term, intermediate and long term investment
strategy of the couple (Bushee, Goodman & Sunder, 2018).
Year (A):
Family
(B):
Annual
© Annual
instalment
(D) Annual
recurring
Surplus
income
Interest

8
PERSONAL FINANCE
income
after
adjusting
inflation
living
expenses
(A-B-C)
1.00
2,822,60
0.00
840,0
00.00 1,586,080.00
396,52
0.00
2.00
2,879,05
2.00
856,8
00.00
298909.50
81 1,378,673.99
344,66
8.50 20,619.04
3.00
2,936,63
3.04
873,9
36.00
298909.50
81 1,411,030.03
352,75
7.51 38,809.85
4.00
2,995,36
5.70
891,4
14.72
298909.50
81 1,444,033.18
361,00
8.29 57,657.77
5.00
3,055,27
3.01
909,2
43.01
298909.50
81 1,477,696.39
369,42
4.10 77,179.75
6.00
3,116,37
8.48
927,4
27.87
298909.50
81 1,512,032.87
378,00
8.22 97,393.14
7.00
3,178,70
6.04
945,9
76.43
298909.50
81 1,547,056.08
386,76
4.02 118,315.68
8.00
3,242,28
0.17
964,8
95.96
298909.50
81 1,582,779.76
395,69
4.94 139,965.51

9
PERSONAL FINANCE
9.00
3,307,12
5.77
984,1
93.88
298909.50
81 1,619,217.90
404,80
4.48 162,361.20
10.0
0
3,373,26
8.28
1,003,8
77.76
298909.50
81 1,656,384.81
414,09
6.20 185,521.73
11.0
0
3,440,73
3.65
1,023,9
55.31
298909.50
81 1,694,295.06
423,57
3.77 209,466.51
12.0
0
3,509,54
8.32
1,044,4
34.42 1,972,091.12
493,02
2.78 234,215.41
13.0
0
3,579,73
9.29
1,065,3
23.11 2,011,532.95
502,88
3.24 262,897.40
14.0
0
3,651,33
4.08
1,086,6
29.57 2,051,763.60
512,94
0.90 292,464.99
15.0
0
3,724,36
0.76
1,108,3
62.16 2,092,798.88
523,19
9.72 322,939.96

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PERSONAL FINANCE
16.0
0
3,798,84
7.97
1,130,5
29.40 2,134,654.85
533,66
3.71 354,344.57
17.0
0
3,874,82
4.93
1,153,1
39.99 2,177,347.95
544,33
6.99 386,701.56
18.0
0
3,952,32
1.43
1,176,2
02.79 2,220,894.91
555,22
3.73 420,034.21
Tota
l
31
,570,364.35
7,892,59
1.09 3,380,888.28
Year (A):
Family
income
after
adjusting
inflation
(B):
Annual
living
expenses
© Annual
instalment
(D) Annual
recurring
Surplus
income (A-
B-C)
Interest
@1.3%

11
PERSONAL FINANCE
1.00
2,822,60
0.00
840,0
00.00 1,586,080.00
396,52
0.00
2.00
2,879,05
2.00
856,8
00.00
298909.50
81 1,378,673.99
344,66
8.50 190,329.60
3.00
2,936,63
3.04
873,9
36.00
298909.50
81 1,411,030.03
352,75
7.51 378,610.03
4.00
2,995,36
5.70
891,4
14.72
298909.50
81 1,444,033.18
361,00
8.29 593,366.84
5.00
3,055,27
3.01
909,2
43.01
298909.50
81 1,477,696.39
369,42
4.10 837,854.84
6.00
3,116,37
8.48
927,4
27.87
298909.50
81 1,512,032.87
378,00
8.22 1,115,720.99
7.00
3,178,70
6.04
945,9
76.43
298909.50
81 1,547,056.08
386,76
4.02 1,431,051.45
8.00
3,242,28
0.17
964,8
95.96
298909.50
81 1,582,779.76
395,69
4.94 1,788,424.36
9.00
3,307,12
5.77
984,1
93.88
298909.50
81 1,619,217.90
404,80
4.48 2,192,968.85
10.0
3,373,26 1,003,8 298909.50 414,09

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PERSONAL FINANCE
0 8.28 77.76 81 1,656,384.81 6.20 2,650,431.26
11.0
0
3,440,73
3.65
1,023,9
55.31
298909.50
81 1,694,295.06
423,57
3.77 3,167,249.19
12.0
0
3,509,54
8.32
1,044,4
34.42 1,972,091.12
493,02
2.78 3,750,634.50
13.0
0
3,579,73
9.29
1,065,3
23.11 2,011,532.95
502,88
3.24 4,437,361.57
14.0
0
3,651,33
4.08
1,086,6
29.57 2,051,763.60
512,94
0.90 5,211,228.92
15.0
0
3,724,36
0.76
1,108,3
62.16 2,092,798.88
523,19
9.72 6,082,788.02
16.0
0
3,798,84
7.97
1,130,5
29.40 2,134,654.85
533,66
3.71 7,063,858.45
17.0
3,874,82 1,153,1 544,33

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PERSONAL FINANCE
0 4.93 39.99 2,177,347.95 6.99 8,167,680.04
18.0
0
3,952,32
1.43
1,176,2
02.79 2,220,894.91
555,22
3.73 9,409,083.40
Tota
l 31,570,364.35
7,892,59
1.09
5
8,468,642.30
Note: Interest on recurring account has been paid on the principal and accumulated interests each
year.
The consolidated balance at recurring account after 18 years will be $34,951,252.63
(31,570,364.35 + 3,380,888.28).
Thus, only from investing recurring account the couple will have more than $34 million in
recurring account to fund the education of their children as well as fund their retirement. The
short term goal of the couple is to use loan funds to carry out improvements in the property
without compromising on the investment and livelihood of the family. Intermediate goals of the
couple is to continue to earn significant return from the investment and in the long run the couple
should concentrate on consolidating its funds by investing in recurring account.
The return requirement of the couple is to earn at-least necessary return to fund their retirement
after 18 years and finance the education of their two children who will be attending colleges by
that time (Blake, Wright & Zhang, 2014).
The reason that it has been suggested to the couple to invest 80% of their annual surplus in
recurring account is to eliminate the risk aspect completely from investment. Hence, the risk

14
PERSONAL FINANCE
tolerance level has been assumed to minimum for the coupe as they are saving for their
retirement and children education. Thus, emphasis has been given on security and safety over the
quantum of return.
Liquidity consideration is not a very huge consideration for the couple as they always had
surplus income even after meeting all expenditures, payments and instalments of land and saving
in recurring account. The 18 years horizon is the most important aspect here since it is expected
that in next 18 years the couple will retire and enjoy life. As already mentioned that with the
objective firmly on assured return on investment the couple would not look for any extravagant
investment opportunity and hence, decided to invest in recurring account of the bank and keep
the rest amount of surplus in hand and banks to ensure there is enough liquidity if needed. 80%
of annual surplus shall be invested in recurring account to earn annual return of 1.3% and the
balance shall be kept on hand and in savings bank accounts (Tyson, 2018).
The couple also have the option invest in long term bonds and stock but since the couple has
decided to minimize the risk of investment hence, no investment in stock shall be made.
However, investing in China Government bond 10 year and China Long Term Maturity Bond to
earn stable return over a long period of time. However, since it requires significant amount of
funds and blocks the funds for 10 years hence, the bond options have been eliminated in the
financial plan. China Government Bond 1 year and China Government Bond 3 years are two
short and medium term bonds to be used to invest in case necessary.
Recommendation:
The couple should take 6% loan in next year to finance the property improvement and
repay the entire loan within next 10 years. By investing 80% of net annual surplus in recurring

15
PERSONAL FINANCE
account to earn 1.30% annual rate of interest will help the couple to make provision for children
college fees and requirements of the couple after retirement (Boisclair, Lusardi & Michaud,
2017).
Particulars Amount ($) Amount ($)
expected funds to be at hand after 18 years
Consolidated balance in Recurring account 34,951,252.6
3
Balance in savings bank accounts 7,892,59
1.09
42,843,
843.72
Less: Requirements after retirement 15,000,
000.00
Surplus funds to be used for education and other purpose of
the children
27,843,
843.72

16
PERSONAL FINANCE
References:
Blake, D., Wright, D., & Zhang, Y. (2014). Age-dependent investing: Optimal funding and
investment strategies in defined contribution pension plans when members are rational
life cycle financial planners. Journal of Economic Dynamics and Control, 38, 105-124.
Boisclair, D., Lusardi, A., & Michaud, P. C. (2017). Financial literacy and retirement planning in
Canada. Journal of Pension Economics & Finance, 16(3), 277-296.
Bushee, B. J., Goodman, T. H., & Sunder, S. V. (2018). Financial Reporting Quality, Investment
Horizon, and Institutional Investor Trading Strategies. The Accounting Review.
Lardy, N. R. (2016). China: Toward a consumption-driven growth path. In SEEKING
CHANGES: The Economic Development in Contemporary China (pp. 85-111).
Saxena, S., Phadke, A., & Gopal, A. (2014). Understanding the fuel savings potential from
deploying hybrid cars in China. Applied Energy, 113, 1127-1133.
Tyson, E. (2018). Personal finance for dummies. For Dummies.
Wu, F. (2015). Planning for growth: Urban and regional planning in China. Routledge.