Case Study: Financial Planning Analysis for Megan and Kevin Lee, 2001

This assignment presents a financial planning analysis case study focusing on Megan and Kevin Lee, a married couple in 2001. The analysis begins with an introduction to financial planning, followed by questions addressing their life cycle phase, development of a balance sheet, and creation of an income and expense statement. The assignment requires calculating and interpreting various financial ratios like liquidity and debt ratios, comparing them with benchmarks to assess their financial condition. It also involves using a two-step/three-panel approach to analyze their financial independence and risk profile, offering recommendations for risk management, debt management, and savings and investment strategies. The solution includes detailed calculations, ratio analysis, and recommendations for improving their financial well-being, including suggestions for life insurance, health insurance, disability insurance, and retirement planning. The analysis incorporates a cash flow statement and pie chart representation to visually depict their financial situation and compare it with benchmarks. Finally, the assignment emphasizes the importance of savings, investment, and overall financial security, referencing various financial planning approaches and benchmarks.

Introduction & background
It is the process by which one could make sensible decision about money which can guide an
individual or a family to achieve their goals in life or it is the process of formulating,
implementing and monitoring financial decision (Juneja). The given case is on client Megan and
Kevin lee they were married in 2001 (Introduction of finacial planning). They are planning their
life goals which include a paying of all credit cards balance, purchasing of new car and home.
They establish save and investment for these goals. A financial planning and investment can help
them to achieve their goals.
Question & Answers
Q1. Which phase of life cycle is Megan and Kevin Lee is most likely in?
Answer: Megan and Kevin lee are second phase of life which is Conservation and risk
management phase. In this phase of life they has to do planning which are resources plan,
financial plan, risk plan, retirement plans etc.
Q2. Using the January 1, 2002 asset and liability information, develop a balance sheet for
Megan and Kevin Lee. Assume they have no unpaid bills. What is the Lee's net worth?
Answer: Balance sheet as on January 1, 2002

Assets1 Amt Liabilities Amt
Current assets Long term liabilities
cash in hand 340 H Education loan 9800
checking account 5589 W Education loan 36780
money market a/c 6213 W computer and printer 2409
saving a/c 518 H Automobile 11542
pension 558 total long term liabilities
$60,531.
00
Total current assets
$13,218.
00 Current liabilities
Investment assets master card 3805
At&T
656 visa card 2808
Fidelity Magellan Mutual Fund 25874 dept. store 1800
401(k) De Vitt Consulting: sears 1667
VFINX 261 discover 2967
VTRIX 405 total current liabilities $13,047.00
500 index mutual fund 3 Total liabilities $73,578.00
international value MF 30 Total net worth $869.00
total investmnt assets
$27,229.
00
Personal property
Automobile 15500
Clothings 3000
Furniture & appliances 6000
Stereo,Tvs,Camera,ets. 3200
GolfClub 800
Jewelry 4000
Miscellaneous 1500
Total personal use assets $34,000.00
Total Assets $74,447.00 Total liabilities and net worth $74,447.00
Q 3. Using the income and expenditure information for 2001, complete an income and
Expense statement for Megan and Kevin. Use the "cash flow" concept for this Financial
statement including all money inflows as income and all outflows as Expenditures. Did
Megan and Kevin have a cash surplus or a cash deficit in 2001?What impact does the
2001 cash surplus (deficit) have on the following years(January 1, 2002) balance sheet?
1 Assests and liabilities are on current value.

Solution: Cash Flow Statement2:
Statement of Income and Expenses of Kevin and Megan for
the 2001
Cash Inflows
Kevin's Salary $42000
Megan's Salary $19000
Megan Consulting income $5000
interest $75
dividends $975
capital gains $3000
Total Inflows $ 70,050.00
Cash Outflows
Savings
401 contribution $2100 $ 2,100.00
Fixed Outflows
rent $10200
utilities $2160
insurance premiums $72
auto maintance(gas, repairs,license) $1980
computer loan payment $1164
telephone and cable TV $960
groceries $3600
food $2040
auto loan payment $5076
medical/dental exp. $960
clothings $2700
Auto insurance paid $586
personal care $600
entertainment $2400
Education exp $1800
Charitable exp $300
credit card payment $3636
miscellaneous $1200
Total Fixed Outflows $43,534.00
Variable Outflows
appliance,furniture,and equipment $1500
vacations $1000
Gifts $1150
reinvestment,dividends & capital gain $4247
2 Cash flow statement are annually prepare.

Federal tax $7632
Social security tax $4668
state income tax $1824
Total Variable Outflows $ 22,021.00
Total cash outflows $ 67,655.00
Net Increase in Cash $ 2,395.00
Q 4. Use the Pie Chart approach to visually represent the client’s current financial
situation and compare it with benchmark to make recommendations?
Solution: balancersheet.xlsx3
Q5. Based on Megan and Kevin’s financial statements, calculate the following ratios:
Liquidity ratio
Debt ratio
Ratios for financial security
Compare the ratios with the age appropriate benchmark to analyze the client’s
financial condition.
Solution:
Liquidity Ratio
Ratio Formula Comment Benchmark
27569
3 open the hyper link.

Quik Ratio _________ = 1.01
$13047
weak 3 to 6 monthCash+ttemp.
Investment+ a/r
Current Liabilities
Current Ratio
Current Assets
Current Liabilities
$13218
______ = 1.01
$13047
weak
Debt Ratio
Ratio Formula Comment Benchmark
Housing
Ratio 1
Housing Costs
Gross pay
10200/70050*100= 14.56% Strong <or= 28%
Housing
Ratio 2
Housing cost+other
debt pymt
Gross pay
5076+3636+1164/70050*100
= 14.1%
Strong <or= 36%
Debt Total
Assets
Total Debt
Total Assets
73578/74447 *100 = 98.8% weak Age
dependent
Net Worth
Assets
Net Worth
Total Assets
869/74447*100 = 1.17% weak Age
dependent

Ratio For Financial Security Goals
Ratio Formula Calculation Comment Benchmark
Savings Rate Savings+Emplyement
match
Gross pay
2100+2100/70050*100
= 6%
Weak Depends on
clients goals
Investment
Assets to
gross pay
Investment+cash
Gross pay
27229+340/70050
= 0.39:1 Strong 0.2:1
Q7. Use the two step/three panel approach combined with metric approach in order to
analyze the client’s financial independence and risk profile. Make appropriate
recommendation to stabilize the risk profile, debt management, savings and investment
management?
Solution: The Two-Step Approach
1. Kevin and Megan need to do savings and take life insurance because they are depend on
each other’s income.
2. Their health and disability insurance is adequate.
3. This two-step approach main focus on investing and savings so that the person would
financially independence.
Metric approach with recommendation ( financial planning approches)
1. Risk management data:

Life insurance: Presently Kevin has life insurance coverage of $84,000 which is
2times of gross salary. He has to increase his increase his insurance policy upto 12-16
times of his gross salary.
Health insurance: Presently Kevin does not have any health insurance. He has to take
a health insurance. Benchmark for health insurance is Lifetime benefit > $1,000,000.
Disability insurance: Kevin and Megan need disability insurance for sickness and
accident. Benchmark for disability insurance is 60-70% of gross pay.
Automobile Insurance: This insurance is needed for comprehensive & collision.
Kevin already has Automobile insurance which is adequate.
2. Short – Term Savings and Investment:
Emergency fund: Right now Kevin has liquid assets as emergency fund which is not
adequate. They have to invest more in emergency fund. Bench mark for emergency
fund 3 – 6 times of the monthly non-discretionary cash outflows.
Housing: Kevin and Megan have adequate housing savings.
3. Long Term Savings and Investment:
Financial Security: They does not have adequate Retirement plan. They have to
increase their 401 retirement Saving from 5 – 8% to 10 -13% (include employer
match).
Lum-Sum goals: They also have some goals such as : purchase of second car, buy a
new house, pay off all credit cards bills, and increase in 401 retirement insurance
plan.
This additional goal will increase the overall savings rate to achieve their goal.
references

(n.d.).
(n.d.).
financial planning approches. (n.d.).
Introduction of finacial planning. (n.d.).
Juneja, P. (n.d.). Management Study Guide Content Team. Retrieved from ManagementStudyGuide.com:
https://www.managementstudyguide.com/financial-planning.htm