Financial Planning: Time Value of Money and Budgeting - Finance

This assignment delves into personal finance, focusing on the application of time value of money concepts and the construction of personal financial budgets. It includes two mini-cases: the first calculates the present value required for a stream of monthly payments and the monthly deposit needed to reach a future savings goal. The second case involves preparing a personal financial statement, conducting ratio analysis to assess Tia's financial position, and creating a financial budget for 2019, evaluating the feasibility of her savings plan. The analysis covers savings ratio, debt service ratio, liquidity, and net worth ratio, concluding that Tia needs to improve her savings and liquidity while questioning the achievability of her savings goal within the proposed budget.

Running head: PERSONAL FINANCE
Personal Finance
Name of the Student:
Name of the University:
Author’s Note:

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Table of Contents
Mini Case 1......................................................................................................................................3
Question A...................................................................................................................................3
Question B...................................................................................................................................3
Mini Case 2......................................................................................................................................3
References........................................................................................................................................5
Appendix..........................................................................................................................................6

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Mini Case 1
Question A
The amount that must be deposited today for receiving an amount of $2600 at the end of
each month would be around $87,207.82. The interest rate taken into account for the purpose of
the analysis would be around 4.75% per annum compounded monthly. The monthly interest rate
was determined for determining the net amount payable today for a sum period of 36 months.
The monthly interest rate would be around 0.39%. The computation of the same was done with
the help of the monthly payment and the compounding the same amount for every period of time
for determining the actual payment of the proposed plan.
Question B
The amount that must be deposited every month for receiving the funds after 30 years of
time-frame would be around $33,216.46 and the same could be accounted for the annual
payment that would be payment for making a lump sum payment of 3 million. The interest rate
that was taken into consideration for the purpose of the analysis was 6.75% and the future value
of the annual payment was done for determining the net lump sum amount after 30 years of time.
The monthly payment was compounded at an annual rate of 6.75% on the yearly investment
done. The final yearly payment was determined with the help of the PMT formula in the excel
and the amount was compounded for a sum of thirty years for determining the final closing
balance at the end of each year.
Mini Case 2
1) The personal financial statement for Tia was prepared with the help of the various heads
of the income and expenses that will be incurred by Tia. The classification of the income

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and the expenses was done in accordance with the nature and characteristics of the
transactions (Chan and Rate 2018).
2) The current financial position of the Tia could be well predicted with the help of the ratio
analysis, which was done by including the various accounts and transactions done by the
Tia.
Ratio Analysis
Savings Ratio 3.23% Equity/Accumulated Funds 80125
Income
83,030.2
5 Total Assets
36970
0
Expenses
80,430.0
0 Net Worth Ratio 22%
Debt Service Ratio 0.95% Current Assets 5500
Net Operating Income 2,600.25 Current Liabilities 14575
Debt Service 275000 Liquidity (Current Ratio) 0.38
The savings ratio of Tia was found to be only 3.23%, which was very low, on the other
hand the debt service ratio was also found to be very low for Tia. Tia also need to focus
on the liquidity position by maintain adequate current assets in contrast to the current
liabilities of the company (Johari et al. 2018).
3) The financial budget for Tia for the year 2019 was done by accounting for the major
expenses that will be incurred by Tia will be taken from the base year figures, which has
been grown at 6% per year. The proposition planned by Tia for saving $4500 towards
overseas holiday does not seem realistic as the net income, which she could get after
accounting for all the major expenses, and income is around $3505.95. She need to
increase her source of income or reduce the level of expenses for getting the desired
results (Muda and Hasibuan 2018).

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References
Muda, I. and Hasibuan, A.N., 2018. Public Discovery of the Concept of Time Value of Money
with Economic Value of Time. In Proceedings of MICoMS 2017 (pp. 251-257). Emerald
Publishing Limited.
Johari, M., Hosseini-Motlagh, S.M., Nematollahi, M., Goh, M. and Ignatius, J., 2018. Bi-level
credit period coordination for periodic review inventory system with price-credit dependent
demand under time value of money. Transportation Research Part E: Logistics and
Transportation Review, 114, pp.270-291.
Chan, K. and Rate, E.A.I., 2018. & 6 The Time Value of Money. Financial Management.

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Appendix
1) Question 1
Monthly Payments
Time
Frame
Interest
Rate
Present
Value
Total
Balance
2600 1 0.39% 2590 2590
2600 2 0.39% 2580 5170
2600 3 0.39% 2570 7740
2600 4 0.39% 2560 10300
2600 5 0.39% 2550 12850
2600 6 0.39% 2540 15391
2600 7 0.39% 2531 17921
2600 8 0.39% 2521 20442
2600 9 0.39% 2511 22953
2600 10 0.39% 2501 25454
2600 11 0.39% 2492 27946
2600 12 0.39% 2482 30428
2600 13 0.39% 2473 32901
2600 14 0.39% 2463 35364
2600 15 0.39% 2453 37817
2600 16 0.39% 2444 40261
2600 17 0.39% 2435 42696
2600 18 0.39% 2425 45121
2600 19 0.39% 2416 47537
2600 20 0.39% 2406 49943
2600 21 0.39% 2397 52340
2600 22 0.39% 2388 54728
2600 23 0.39% 2379 57107
2600 24 0.39% 2370 59477
2600 25 0.39% 2360 61837
2600 26 0.39% 2351 64188
2600 27 0.39% 2342 66531
2600 28 0.39% 2333 68864
2600 29 0.39% 2324 71188
2600 30 0.39% 2315 73503
2600 31 0.39% 2306 75809
2600 32 0.39% 2297 78107
2600 33 0.39% 2288 80395
2600 34 0.39% 2280 82675
2600 35 0.39% 2271 84946

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2600 36 0.39% 2262 87208
2) Question 2
Time Frame Opening Balance
Interest
Rate Future Value Final Balance
1 33216 6.75% 35459 35459
2 68675 6.75% 73311 73311
3 106527 6.75% 113718 113718
4 146934 6.75% 156852 156852
5 190069 6.75% 202898 202898
6 236115 6.75% 252052 252052
7 285269 6.75% 304525 304525
8 337741 6.75% 360539 360539
9 393755 6.75% 420333 420333
10 453550 6.75% 484165 484165
11 517381 6.75% 552304 552304
12 585521 6.75% 625043 625043
13 658260 6.75% 702692 702692
14 735909 6.75% 785583 785583
15 818799 6.75% 874068 874068
16 907284 6.75% 968526 968526
17 1001743 6.75% 1069360 1069360
18 1102577 6.75% 1177001 1177001
19 1210217 6.75% 1291907 1291907
20 1325123 6.75% 1414569 1414569
21 1447785 6.75% 1545511 1545511
22 1578727 6.75% 1685292 1685292
23 1718508 6.75% 1834507 1834507
24 1867724 6.75% 1993795 1993795
25 2027012 6.75% 2163835 2163835
26 2197051 6.75% 2345352 2345352
27 2378569 6.75% 2539122 2539122
28 2572339 6.75% 2745971 2745971
29 2779188 6.75% 2966783 2966783
30 3000000 6.75% 3000000 3000000

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3) Question 3
1) Income and Expenses
Income and Expenses
Income Amt ($)
Gross Income 83,000
Interest on Other Assets 30.25
Total Income
83,030.2
5
Expenses Amt ($)
Gym Rental, Membership and
Insurance 19,175
Car Expenses 2300
Tax and Medicare Levy Payment 8395
Mortgage Repayments 14575
Electricity 2600
Strata Fees 1600
Council Rates 1100
Water 850
Groceries & Household Products 16900
Clothing 2100
Health Cover 3380
Medical and other health related cost 975
Mobile Phone and Internet 1680
Entertainment 4800
Total Expenses
80,430.0
0
Net Income (Income-Expenses) 2,600.25

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2) Balance Sheet
Balance Sheet
Liabilities
Amt
($) Assets
Amt
($)
Mortgage
27500
0 Car 4200
Current Liabilities 14575 Two Bedroom Unit
35000
0
Accumulated Funds 80125 Furniture and Personal Assets 10000
Other Assets 5500
Total Liabilities
36970
0 Total Assets
36970
0
3) Ratio Analysis
Ratio Analysis
Savings Ratio 3.23% Equity/Accumulated Funds 80125
Income
83,030.2
5 Total Assets
36970
0
Expenses
80,430.0
0 Net Worth Ratio 22%
Debt Service Ratio 0.95% Current Assets 5500
Net Operating Income 2,600.25 Current Liabilities 14575
Debt Service 275000 Liquidity (Current Ratio) 0.38

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4) Financial Budget
Financial Budget
Income Amt ($)
Gross Income 83,000
Additional Income 3,900
Interest on Other Assets 30.25
Total Income
86,930.2
5
Expenses Amt ($)
Gym Rental, Membership and
Insurance 19,175
Car Expenses 2300
Tax and Medicare Levy Payment 8395
Extra Payment in Medicare Levy
Payment 2519
Mortgage Repayments 14575
Electricity 2756
Strata Fees 1600
Council Rates 1166
Water 901
Groceries & Household Products 16900
Clothing 2100
Health Cover 3582.8
Medical and other health related cost 975
Mobile Phone and Internet 1680
Entertainment 4800
Total Expenses
83,424.3
0
Net Income (Income-Expenses) 3,505.95