Personal Finance Assignment, Course Name, Semester 2017, University

This personal finance assignment delves into various aspects of financial management, starting with an overview of financial literacy in Canada and the need for public education on the subject. The assignment then addresses debt and taxation, providing guidance on how to avoid tax scams and protect personal information. It further explores fiscal goals, illustrating the importance of planning major investments with a cost-benefit analysis and adaptation strategies. The assignment also covers retirement planning, including financial needs estimation, savings plans, and investment avenues. Finally, it reflects on the course's impact, highlighting key learnings in planning, forecasting, taxation, and investment strategies to achieve maximum results with minimal resources. The document includes references to relevant financial literature.

2017
Personal Finance Assignment

1
By student name
Professor
University
Date: 20August, 2017.
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Contents
Answer to Question No 1……………………………………………………...3
Answer to Question No 2……………………………………………………...4
Answer to Question No 4……………………………………………………...6
Answer to Question No 5……………………………………………………...8
Answer to Question No 7……………………………………………………...10
References...........................................................................................................12
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Section One – Financial Literacy in Canada
Understanding Personal Finance is the need of the hour. Not only understanding, but
thorough implementation and learning is required, to implement it effectively in real life. Most of
the Canadian population lacks financial literacy. They need to be trained at the right time such
that they are able to set out personal objectives and are able to take their decisions, based on the
present circumstances. It will help them from not getting cheated and will keep their finances
safe. For this a radical change is required throughout the country. It can be achieved with the
Federal government and several NGO organizations joining hands together and working in this
sector. They can start with educating the people the about the need of it and can teach them ways
of handling the personal finance, its planning and execution. Voluntary self-education is difficult
and hence the need arises to motivate them through some incentive, which can be rewards and
awards in various forms. People need to be educated about the “budget” and how to use it in the
personal life such that people use the limited resources available with them in an effective way.
Moreover, they should be trained at young age only so that with passing age, they are able to
plan better for their post retirement and hence are not dependent on others for finances. Also,
most of the population is unaware of what exactly “insurance” is all about; they need to be made
aware of the same. Moreover, it is the responsibility of the government to bring the information
to the people from the trusted sources in order to improve the financial and economic status of
the individuals. Besides this, every other situation or the transaction has a concept of trade off or
opportunity cost involved. They need to well-trained about these terms so that they make the
right choices.1 It is thus important that people apply efforts from their end to understand the
1 (Luu, Lowe, Butler, & Byme, 2017)
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situation and puts in their own efforts and the government needs to provide the necessary
guidance as and when needed.
Section Two – Debt and Taxes: Answer to Question 3
There have been a large number of people being subject to the tax scams these days in
Canada via an email message or a fake phone call. The foremost reason for being cheated is the
unawareness and lack of the subject knowledge on the taxation front. They are generally
fraudsters impersonating themselves to be from Canada Revenue Agency and will either be
using the link to be clicked by the user to pay the balance tax or there would be calls from
unknown numbers to share the private banking or credit card information in order to complete
the yearly tax filing procedure. Here is few ways to protect you:
1. CRA never asks for the personal data via a phone call or an email link, there would be
proper communication via the letter. So people should take note of the same and try not
to fall prey to such calls.
2. They would never demand the penalty or the left over tax in the form of gift cards, or
goods or exactly credit card.
3. They would never inquire the Social Insurance Number. It is a private number and is not
needed by the CRA agents when it comes to tax filling.
4. There would be a confirmation window for the present tax status before further tax
payment is asked for. So the users must look for the validity of the same and then take
important decision to pay.
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5. In case inadvertently the bank account information is shared over the mail to a suspicious
recipient, the person should take help of the bank to block his/her account so that the
access is restricted2. This will help in keeping the account safe and also help the
government in getting hold of these fake imperators.
2 (Melvin & Norrbin, 2017)
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Section Three – Fiscal Goals: Answer to Question 4
Once a major investment or expenditure is to be incurred, planning is a pre requisite. It is
important to properly plan all the things, beforehand so that the results are effective and as per
the required standards. There can be multiple investments examples from real life, like
investment for a course, buying a new house or a major capital expenditure for the business. A
lot of money is needed for any of such activity. Thus it is important that before investing the
same, proper planning must be done to avoid discrepancies. The aim should be to make the most
profitable investment that will help in getting the best results. An illustrative example of such
plan is earmarked below:
1. A statement of goal: A machinery is to be purchased for use in business, the same is
to be imported from outside Canada and a down payment of 50% of the total cost is
required to be made upfront. The same can be paid through Letter of Credit or direct
wire transfer. A cost benefit analysis needs to be done.
2. Expected cost of purchase: The machinery will cost at around CAD 200,000 out of
which a total of CAD 100,000 will needs to be paid as advance through the bank.
3. Savings plan with the estimates and expected rate of return: The expected rate of
return from the project investment is expected to be 20-22% over the period of 5
years from initial investment. The investment will break even in the 3rd year using the
estimated discounted rate of 10%. Since this is an integral investment to the whole
project, it will results in economies of scale and the productivity and the revenue will
increase on account of it. The rest 50% of the amount is to be paid in the equal
installment amount over the time horizon of next 3 years. In the calculation attached
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below, it has been assumed that the machinery will depreciate at the rate of 20% for 5
years on a straight line basis.
PV factor @ 10% PV @ 10%
Particulars Year Project Project
Cost 0 (100,000) 1.0000 (100,000)
1 (33,333) 0.9091 (30,303)
2 (33,333) 0.8264 (27,548)
3 (33,334) 0.7513 (25,044)
Cash Inflows 1 52,000 0.9091 47,273
2 57,000 0.8264 47,107
3 52,000 0.7513 39,068
4 64,000 0.6830 43,713
5 70,000 0.6209 43,464
37,731
Formula : NPV = Sum total of PV of inflows - PV of outflows
NPV
4. Adaptation Strategies: There might be several challenges and changes in
technological arena which might breakthrough in the coming 3-5 years but to
negotiate with the same, it has been agreed by the vendor to add a specification to the
machine to increase its efficiency at 50% discount over the coming period. Moreover,
in case the machinery as a whole needs to be replaced, the company will be paying
60% of the book value at that time3.
3 (Hopkin, 2017)
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Section four: Answer to Question 5
Retirement is inevitable in a salaried person’s life and it has to be planned really well in
advance in order to avoid future contingencies and risks. The retirement strategy needs to be
planned ideally at the age of 25-30 years and a planned investment is needed to yield the best
return. Considering the investment avenues & the best rates available in the Canadian market,
following is the proposed proposition to save for retirement:
i. I am planning to retire at around 55-58 years, this would be the ideal time because
the family would be well established and the public policy on retirement would
also be in effect at that time as per the law. In case I retire anytime before that, I
would like to move towards social service and make a step ahead in the personal
handicraft works, which needs minimal investment but would require skilled
hands and marketing. In this way I will keep myself occupied and will also retain
that sense of independence.
ii. Estimation of the financial needs and expenses post retirement: On the outset, the
basic requirements can be fulfilled in approximately CAD 500, other social
requirements may vary from CAD 200-300, besides all this, and there may be an
ad requirement like medical expenses, one time expenditure which again may be
tune of CAD 200-300. To plan other personal business, a short term investment of
CAD 1000-2000 may be required to open the start up. Since, everything would be
specifically machine made, investment in machinery would be required and there
would be less of lab our costs.
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iii. Savings plan with estimated rate of return: To yield a good return, a pre facto
analysis was done and basis that I have invested in the social security scheme and
also in pension funds which are expected to grow at 4-5% annually and will be
sufficient to cater the needs of CAD 1200-1250 post retirement on a monthly
basis. Besides this, in case, there is any casualty to me, the same will be assigned
to my nominee for their future4. To cover the additional fund requirements,
investments halve also been made in fixed deposits which are expected to grow at
the rate of 2% annually on the average basis5.
A detailed calculation of the entire working is shown in the below table:
Monthly Yearly
Amount (in CAD) Amount (in CAD)
Regular Personal basic retirements 500 6,000
Social requirements 250 3,000
Medication requirements 250 3,000
1,000 12,000
One time Business Expenditure 1,500 1,500
Overheads 200 2,400
1,700 3,900
2,700 15,900
Amount (in CAD)
3,600
4,800
8,400
Insurance +Pension Investment
(4000 per year*4%*30 years)
Total
Investments in
Funds requirements (post retirement)
Comprehensive Savings Plan (yearly); time period considered 30 years
Savings Account and SSS (annually)
(6000 per year*2%*30 years)
Subtotal (a)
Subtotal (b)
Total (a+b)
Particulars
4 (Sweeting, 2017)
5 (Trigeorgis & Reuer, 2016)
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Section Five – Class and Pedagogy: Answer to Question 7
The course and the sessions imparted on the personal financing front have been and will
be ultra essential. The fact that the present has huge arena of investment avenues, in the
professional world makes it much more essential. Major teachings and learning has been
undertaken in the course, to make use of planning and forecasting strategies in order to reap the
maximum returns with minimal risks. To plan well, the knowledge on the subject is necessary as
well as a good research on the topic.
Also, it has helped to get some insights into the taxation front, in order to how adequate
guard needs to be insured to avoid fraudsters and prevent oneself from being cheated. Not only
personal knowledge is essential, but to create awareness in order to prevent others from being
deceived or defrauded is essential. Besides all this, this course has given helped some
investments strategies and how to do pre facto analysis that by what period the initial investment
would be recovered, what would be the breakeven point, what would be ROI and the final
profits. It has given lessons of planning the debts well in order to avoid crisis, this can be done
by paying the installments bi-monthly rather than monthly, avoiding the purchases which are
based on option of “buy today, pay later” and interest free loans as it always increases the
liability. Also, negotiation skills play a great deal in major investments as it needs to be on par to
get the maximum benefit out of the financial situation6.
All in all, this course is explicitly aimed at achieving the maximum results out of the
minimum available resources and the same can be achieved with aggressive planning and
accurate execution7.
6 (Gerrans & Hershey, 2016)
7 (King & Carey, 2017)
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References
Gerrans, P., & Hershey, D. (2016). Financial Adviser Anxiety, Financial Literacy, and Financial Advice
Seeking. Journal of Consumer Affairs , 51 (1), 54-90.
(http://onlinelibrary.wiley.com/doi/10.1111/joca.12120/full)
Hopkin, P. (2017). Fundamentals of Risk Management: Understanding, evaluating and implementing
(Fourth ed.). London: The Institute of Risk Management. (https://books.google.co.in/books?
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hl=en&lr=&id=zfvTDQAAQBAJ&oi=fnd&pg=PR5&dq=Fundamentals+of+Risk+Management:
+Understanding,+evaluating+and+implementing+(Fourth+ed.).+London:
+The+Institute+of+Risk+Management.&ots=d7FY8wo3oU&sig=LXd949IFom165yX0O9wbfxe-
96o#v=onepage&q=Fundamentals%20of%20Risk%20Management%3A%20Understanding%2C
%20evaluating%20and%20implementing%20(Fourth%20ed.).%20London%3A%20The
%20Institute%20of%20Risk%20Management.&f=false)
King, J., & Carey, M. (2017). Personal Finance. UK: Oxford University Press.
(https://books.google.co.in/books?
hl=en&lr=&id=4dxKDgAAQBAJ&oi=fnd&pg=PP1&dq=Personal+Finance.+UK:
+Oxford+University+Press+King,+J.,+%26+Carey,
+M.&ots=qKjQ8t4_69&sig=pvtmeWLIlyBustD9aKfMRnB-l_8#v=onepage&q&f=false)
Luu, L., Lowe, J., Butler, J., & Byme, T. (2017). Essential Personal Finance: A Practical Guide for Students.
NY: Routledge. (https://books.google.co.in/books?
hl=en&lr=&id=wDglDwAAQBAJ&oi=fnd&pg=PP1&dq=Luu,+L.,+Lowe,+J.,+Butler,+J.,+%26+Byme,
+T.+(2017).+Essential+Personal+Finance:+A+Practical+Guide+for+Students.+NY:
+Routledge.&ots=K_ICyU_uGe&sig=CuZRHq8A9_HjrW-PZJrwJ93yhgc#v=onepage&q&f=false)
Melvin, M., & Norrbin, S. (2017). International Money and Finance (Ninth ed.). UK: Academic Press.
(https://books.google.co.in/books?hl=en&lr=&id=TF_CDQAAQBAJ&oi=fnd&pg=PP1&dq=Melvin,
+M.,+%26+Norrbin,+S.+(2017).+International+Money+and+Finance+(Ninth+ed.).+UK:
+Academic+Press.&ots=IirHOW1iZG&sig=XnqgasI0z9JqIKSkyVCi-XRzfHg#v=onepage&q&f=false)
Sweeting, P. (2017). Financial Enterprise Risk Management (Second ed.). UK: Cambridge University
Press. (https://books.google.co.in/books?
hl=en&lr=&id=GJsqDwAAQBAJ&oi=fnd&pg=PR11&dq=Sweeting,+P.+(2017).
+Financial+Enterprise+Risk+Management+(Second+ed.).+UK:
+Cambridge+University+Press.&ots=dK6WGVqOQu&sig=GYo7VJIocGZleGeM1qw1dbEbylQ#v=o
nepage&q&f=false)
Trigeorgis, L., & Reuer, J. (2016). Real options theory in strategic management. strategic management
journal , 38 (1), 42-63. (http://onlinelibrary.wiley.com/doi/10.1002/smj.2593/full)
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