Managing Personal Finance Report

This report on managing personal finance covers various aspects such as debt to asset ratios, liquid asset evaluations, retirement planning methods, and the impact of interest rates on financial health. It includes detailed calculations and analyses to help individuals understand their financial standing and make informed decisions regarding wealth accumulation and retirement strategies.

Running head: MANAGING PERSONAL FINANCE
Managing personal finance
Name of the student
Name of the university
Author note

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Table of Contents
Question 1 – Wealth grounding.................................................................................................2
(a) Debt to asset ratio of Chin Eng....................................................................................2
(b) Liquid asset to net worth ratio.....................................................................................2
(c) Total interest calculation.............................................................................................3
(d) Consequences of increase interest rate on the home buyers........................................5
Question 2 – Wealth accumulation............................................................................................6
Question 3..................................................................................................................................8
(a)(i) Methods of determining retirement income..................................................................8
(b) Non-financial factors to be considered while advising on retirement planning..........9
(c) Consideration of available retirement saving plan......................................................9
(d) Factors affecting the withdrawal rate under retirement.............................................10
Reference..................................................................................................................................11

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Question 1 – Wealth grounding
(a) Debt to asset ratio of Chin Eng
Particular Amount
Asset
Value of Thomson Condominium $ 1,350,000.00
Car $ 75,000.00
Current account balance $ 3,000.00
Fixed deposit balance $ 4,000.00
Growth stock portfolio $ 40,000.00
Misc. personal property $ 70,000.00
Total asset $ 1,542,000.00
Liabilities
Loan on Thomson condominium $ 650,000.00
Car loan balance $ 20,000.00
Credit card balance $ 30,000.00
CPF OA balance $ 80,000.00
Total debt $ 780,000.00
Debt to asset ratio Total debt/Total asset 0.51
Usage of debt to asset ratio for evaluation of financial health
The debt to asset ratio can be used to analyse the financial health of a person as it
indicates whether the asset of the person is sufficient to cover up his debt. It is recognized
from the above calculation that the net asset of Mr. Chin Eng is approximately twice his
debts. Therefore, his assets are sufficient to pay off his debts (Huang, Ritter & Zhang, 2016).
(b) Liquid asset to net worth ratio
The liquid asset to net worth ratio of Mr. Chin Eng is as follows –
Liquid asset
Current account balance $ 3,000.00
Net worth $ 762,000.00

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Liquid asset to net worth ratio Liquid asset/net worth 0.39%
Liquid asset to net worth ratio analyse the financial condition of an individual with
regard to his asset’s health. Generally, the liquid asset represents the liquid part of the asset.
The liquid asset can be used quickly to fulfil the obligation. At least 15% of liquid asset
represent healthy financial condition of the individual. However, from the above calculation
it is recognized that the liquid asset percentage to net worth is only 0.39% which is
significantly low (Cui & Radde, 2016).
If Ching Eng wants to purchase new asset through debt finance, it will increase the
total liabilities of the company and it will have an impact on the liquid asset to net worth ratio
of the individual.
For example, let’s assume that the new watch will cost $ 10000, then amount of long-
term finance will be ($ 10,000*90%) = $ 9,000. Therefore, the amount of liabilities will be ($
780,000 + $ 9,000) = $ 789,000 and the amount of net worth will be ($ 15,42,000 - $
780,000) = $ 753,000.
Therefore, the liquid asset to net worth ratio will be = $ 3,000 / $ 753,000 = 0.40%.
Therefore, it can be identified that raising further finance through long-term debt will
increase the liabilities, which in turn will improve the liquid assets to net worth ratio,
provided that the amount of liquid asset remain constant.
(c) Total interest calculation
(i) Printout of calculation

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(ii) Percentage of the total payment spent on the interest = 33%
(d) Consequences of increase interest rate on the home buyers
 Extra burden – interest rate rise will create extra burden on Mr. Chin Eng as he
already have big amount of loan on existing home. Increase in interest rate will
increase is burden with regard to the existing loan as well as with regard to the new
home, if purchased.

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 Credit worthiness - the credit worthiness of Mr. Chin Eng will be loosening as it will
prevent the borrower from getting new loan. Further, higher interest rates will reduce
the refinance loans options (Chua, 2015).
 Reduce the saving – due to higher amount of interest outflow, the cash outflow of Mr.
Chin Eng will increase which in turn will left little amount for savings and meeting of
other expenses.
Question 2 – Wealth accumulation
(a) (i) Amount to be exchanged = A$ 1,500
Rate of exchange = A$1 = S$ 1.315
Exchanged amount will be = $ 1,500 * S$ 1.315 = S$ 1,972.50
Therefore, the Singapore dollars amount for which the Australian dollars will be exchanged
will be S$ 1,972.50.
(ii)Amount of Australian dollar received after holiday
Amount received through exchange = S$ 1,972.50
Daily expenses = S$ 125 per day for 4 days
Therefore, remaining amount after expenses = S$ 1,972.50 – (S$ 125 * 4)
=S$ 1,472.50
At the time of leaving Singapore the exchange rate was A$ 1 = S$ 1.295
Therefore, the amount will be received for exchange of remaining Singapore dollars to
Australian dollars will be = S$ 1,472.50 / 1.295 = A$ 1,137.07

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(b) (i)
Purchase cost of car $ 52,750.00
Down payment $ 10,550.00
Amount to be taken on finance $ 42,200.00
Amount of instalment calculation –
Rate of interest 3.5% per annum
Amount of interest = 42,200 * 3*3.5% = $ 4,431
Total amount to be repaid = $ 42,200 + $ 4,431 = $ 46,631
Therefore, amount of instalment = $ 46,631 / (3*12) = $1,295.30 per month
Savings in payment B, if payment A is chosen
Payment under scheme A $ 52,750.00
Payment under scheme B $ 42,200.00
Savings $ 10,550.00
Saving percentage 20%
(c)(i) Active investing Vs passive investing
Under passive investing the investment is done for long time and it limits the selling
and buying amount within the portfolio which turn makes it cost-effective. It requires the buy
and hold strategy. It states the resistance of temptation for anticipating or reacting on the
move of the stock market. On the contrary, the active investing applies the hands on strategy
and needs active role of a portfolio manager. It requires the confidence that whoever is
investing will be aware of the exact right time regarding selling and buying (Appel, Gormley
& Keim, 2016).
(ii) Value style investing Vs Growth style investing

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Value investing is the investment approach under which, those stocks are selected
which trades for the lesser value as compared to the intrinsic value. The value investors seek
to stock actively in those stocks which they believe that the market has understated. On the
contrary, the growth styles are overstated and expensive, owing to which the investors
sometimes prefer to invest in the value stocks (Cronqvist, Siegel & Yu, 2015).
Question 3
(a)(i) Methods of determining retirement income
 Income method – this is the simplest way. The amount can be determined simply
through multiplying a factor with the current income of the person.
Current income of Bo Eng = $6,500
Expected rate of return = 6%
Therefore, required income is $ 6,500 + ($ 6,500*6%) = $ 6,890
 Expense method – Under this method, the person must define the retirement income
on the basis of his retirement expense. The expenses can be forecasted though
preparation of budget. Further, forecasting of expenses will enable the person to
evaluate what amount he must save to cover up the cost of retirement.
As per the given circumstance, the income method will be better for Bo Eng as the
details of his expenses are not available. Further, as a general person he may not be able to
forecast his expenses properly or prepare the budget to adopt the expense method.
(ii) Inflation rate = 3%.

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Mr. Bo Eng plans to retire at the age of 65 and live up to the age of 85 years.
Therefore, as per the CPF retirement calculator his retirement requirement is $ 16,16,632 as
follows -
Therefore, monthly income requirement for up to the age of 80 years that is for (20*12) =
240 months will be = $16,16,632 / 240 = $ 6,735.97 per month
(b) Non-financial factors to be considered while advising on retirement planning
 Activities and interest that may be added to the routine
 The expected lifestyle of the person during retirement
 What are the interests that are shared between the person and his spouse (Chan,
Gustafsson & Liddle, 2015).
 Whether the person is a performing artist like singer, musician, dancer or writer
 What is the preference of the person when he has no other commitments

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 What are the subject of interest that he may had to put aside owing to lack of the time
(c) Consideration of available retirement saving plan
 AXA Retire Happy – this is the 1st retirement income plan that is inflation adjusted.
Further, it offers highest yield with regard to guaranteed maturity for most of the
cases and the investor can use supplementary retirement account as well as cash for
purchasing
 Aviva My Retirement Plus – they are the only insurer that adopts the moratorium
underwriting for the integrated plan shield. It offers guaranteed income in each month,
projected cash bonus after retirement and additional income per month that will be
converted from bonus.
(d) Factors affecting the withdrawal rate under retirement
 Amount of the guaranteed income
 Income stability level expected by the retiree
 Risk associated with the portfolio
 Level of household expenses that can be adjusted or sacrificed
 Assumption of return used for the projections
 Rate of inflation

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Reference
Appel, I. R., Gormley, T. A., & Keim, D. B. (2016). Passive investors, not passive
owners. Journal of Financial Economics, 121(1), 111-141.
Chan, M. L., Gustafsson, L., & Liddle, J. (2015). An intervention to support professional
driver retirement transition: Results of a pilot study for older taxi drivers in
Singapore. British Journal of Occupational Therapy, 78(6), 391-400.
Chua, B. H. (2015). Financialising public housing as an asset for retirement in
Singapore. International Journal of Housing Policy, 15(1), 27-42.
Cronqvist, H., Siegel, S., & Yu, F. (2015). Value versus growth investing: Why do different
investors have different styles?. Journal of Financial Economics, 117(2), 333-349.
Cui, W., & Radde, S. (2016). Money and Asset Liquidity in Frictional Capital Markets. The
American Economic Review, 106(5), 496-502.
Huang, R., Ritter, J. R., & Zhang, D. (2016). Private equity firms’ reputational concerns and
the costs of debt financing. Journal of Financial and Quantitative Analysis, 51(1), 29-
54.