Personal Financial Plan

1 Personal Financial Plan Budget In this case, the budget will be calculated on a monthly basis after considering the monthly income, the expenses that should be handled, the debts that are owed to the other parties, emergence funds payment, and even the savings that should be made. There are various sources of income here, one that is paid from formal employment, and others coming from personal employment. Money comes in at different times of the month. The total income can be summarized in the table below: 2020

2020

2020

2020

2020

2020

July

August September

October

November December

Incomes Contract

3,417 3,417

3,417

3,417

3,417

3,417

Tutoring

0

0

250

500

500

300

Memorabilia

400

450

300

500

900

100

earnings

Sales House Painting

3,472 3,472

0

0

0

0

Interest

111

192

200

20

36

153

Income Total Income

7,400 7,492

3,967

4,617

4,844

3,853

Payroll/Income

-792

-792

-792

-792

-792

-792

Disposable

6,60

6,700

3,175

3,825

4,050

3,061

Income

8

Taxes

2 Having taken note of the disposable income, the following expenses are taken into consideration. These are expenses incurred from time to time, and some tend to be fixed across the months. Considering the expenses and the incomes for the period under consideration, it suffices to say that the disposable income is well placed to take care of the expenses at any given time. As such, it is possible to have a significant percentage of savings from the same (Kaye et al., 2014).

Living Expenses Groceries

-260

-260

-260

-260

-260

-260

Car (Fuel)

-127

-127

-127

-127

-127

-127

Car (Service, etc.)

-29

-29

-29

-29

-29

-29

Car (Insurance)

0

-400

0

0

0

0

Electricity

-65

-65

-65

-65

-65

-65

Phone/Cable/

-89

-89

-89

-89

-89

-89

Heat

0

0

0

-100

-100

-200

Health and Dental

-70

-70

-70

-70

-70

-70

Medical

-20

-20

-20

-20

-20

-20

Travel/Entertainment

0

0

0

0

0

0

Car Loan Payment

-499

-499

-499

-499

-499

-499

Internet

Insurance

3 Mortgage Interest

-897

-897

-897

-897

-897

-897

Property Tax

0

0

0

-4,350

0

0

Total Living Expenses

-2,056

-2,456

-2,056

-6,506

-2,156 -2,156

Income after Living

4,552

4,244

1,119

-2,681 1,894

905

Expenses

Capital Expenditures/Investment Mortgage Principal

-270

-270

-270

-270

-270

-270

Free Cash Flow

4,282

3,974

849

-2,951

1,624

635

RRSP Deposit

0

0

0

0

0

0

0

0

1,624

635

Home Improvement

-

0

0

0

4,282

3,974

849

0

0

0

0

0

0

0

0

0

0

0

0

15,000

High Interest Savings Account

17,951

deposit/(withdrawal) Line of Credit draw on/(pay off) Net Cash Flow

4 Line of Credit Balance Tax-Free Savings Account Balance

0

0

0

0

0

0

7,345

7,554

8,702

9,541

9,836

9,988

Judging from the budget, the financial position, in this case, is viable, considering the fact that the debts are taken care of and that there are cash flows from other investments. The ultimate result is that significant savings can still be made at the end of every month.

Net worth Statement The net worth statement, in this case, is considered to be the difference between the total assets that I own and the total liabilities (what is owed to others). Taking the net worth into perspective is important for measuring financial development from one financial year to the next. With the right planning, the net worth is supposed to improve over time (Kalyugina et al., 2015). In this case, it is evident that the priorities have been set right, hence leading to very positive net worth.

The net worth statement below also depicts a positive net worth. There is a strong asset endowment that makes the statement of net worth strong. There are significant savings that are made at the end of the month, courtesy of the cash flows from the other sources. There are certificates of deposit, notes, and contracts receivable, and some investment in the security exchange market. The real estate and some valuable personal property have also contributed to a viable financial position. In this case, the jewelry will be used as a store of value, and this can easily be converted back into cash. In this case, there is less emphasis on life insurance and retirement funds, hence creating a situation whereby there is no money that is saved in that regard. However, this is done with good intention, considering the extent to which there are formidable saving plans and the cash flows generated from the investments (Petty et al., 2015). This is done with the intention to avoid the risks that are associated

5 with savings. It is a better option when the money is channeled into investment projects. There is some good management of the liabilities. This is evidenced in the manner in which the mortgages and the car loan is being paid. The installments have been spread over a period of time, hence having an insignificant impact on the personal net worth. In this case, the liquidity has been kept within comfortable limits, and the chances are high that there is still an adequate amount that can be channeled into investments or even committed to an insurance plan. If this will be the way to go, the chances are high that the additional money will be put into more securities as there is a need to diversify the investment portfolio.

Assets

Amount in Dollars

Cash - checking accounts Cash - savings accounts

9,988

Certificates of deposit

1,200

Securities - stocks / bonds /

714

mutual funds Notes & contracts receivable

3,417

Life insurance (cash surrender

-

value) Personal property (autos,

3,056

jewelry, etc.)

Retirement Funds (e.g. IRAs,

-

401k) Real estate (market value)

5,333

Other assets (specify)

-

Other assets (specify)

-

6 Total Assets

$

23,708

Liabilities

Amount in Dollars

Current Debt (Credit cards,

$

300

Accounts) Notes payable (describe

513

below) Taxes payable

792

Real estate mortgages

1,167

(describe) Car loan

499

Other liabilities (specify)

-

Total Liabilities

$

3,271

Net Worth

$

20,437

Financial independence analysis - income, budget, and retirement goals When the above budget is considered, it is evident that the strategy is tailored towards gaining financial independence. There is an effort to pay the credit cards in full so that the burden is not shouldered for a very long time. The mortgage and the car loan are being serviced so that there will be no such obligations in the short term. The fact that there are two loans running also shows that I have a good credit rating, and I am still legible for more long-term loans if I would want to take them. As such, financial independence is being pursued by ensuring that short-term and long-term obligations are being settled in order to build a good credit rating (Kalyugina et al., 2015).

7 There are some automatic savings that have been created. Although there is no clear retirement plan, the exhibited trajectory of investment and savings at the personal level is tailored towards creating inter-generational wealth. The priorities have been set right in order to ensure that money is always going to the right places. The inevitable expenses are catered for first, after which the remaining money goes to the savings kitty. There are also cash flows that are coming from the already existing investments, and most of these are also channeled to re-investments and savings because most of the expenses are already sorted from the contractual earnings (Kaye et al., 2014).

As recommended by the financial experts, there is no better way of growing the money than through investing. There is some magic of compound interest that is likely to help an individual to increase exponentially over time. However, there is a need for a lot of time in order to achieve meaningful growth. From the budget and the net worth statement, the investments are made by diversifying the portfolio and ensuring enough cushioning for the risks associated with the investment.

Some investment has been made in real estate and the securities market. There is also a significant proportion that has been stored in the form of valuables, such as jewelry. Irrespective of the financial risks that are likely to emerge, I will be in a good position to start again because of the manner in which the investment portfolio has been diversified (Kalyugina et al., 2015).

In order to attain financial independence, there is the need to live on less than the income earned. A very small portion of the income goes on the expenses. This is well captured in the above budget such that most part of the income goes to the savings. The more one spends every year, the less they have available to save every year to reach the target. I have tried to figure out the minimum expense lifestyle that is likely to make me happy. I only have one car I am still paying, and the costs incurred on fuel each month are not significant. Other expenses such as groceries and electricity are constant, implying that the manner in which groceries are used and the electricity used every month is highly regulated to such an extent that it should not exceed a certain level.

8 I have been able to escape the spending trap by taking into consideration the difference between long-term wealth and income. As much as income is an obvious component of wealth, it happens not to be the only factor. Wealth would rather be looked at as the total net worth at any given time, and therefore it is equity on an individual’s balance. The only way to amass wealth is by acquiring assets. This ought to be done strategically in the sense that the assets can also appreciate or can be associated with some returns at fixed intervals. This is one sure way of tending towards financial independence. This has been well considered in the above budget and net worth statement. There is a rental property, and most of the income is diverted back to meaningful investments that guarantee financial independence (Kalyugina et al., 2015).

The money generating activities that I am involved in can also help me in attaining financial independence. It can be hard to expect much progress when depending on one trade. Some of the income-generating activities, in this case, include contract earnings, tutoring, house painting, interest income, and the sales made. At any given time, there is some income that is generated from these activities, hence improving my liquidity state. The money is sometimes channeled into long-term investments such as real estate and stocks.

The retirement goals will entail making inter-general wealth that cannot be depleted in a lifetime. The second goal will entail adjusting what I intend to do in retirement based on the amount that I would have saved at that time. Another goal will be reviewing my investments more regularly and moving them to safer funds. Another goal, which is applicable now, entails boosting my savings and investment now by diverting more money towards such initiatives.

Investment and retirement plan strategy As I transition into retirement, I would have achieved much of what is needed, and therefore I would only be going for low-risk investments, even if the returns will be low. Since I intend to accelerate the level of investment this early, one thing that I am considering is taking early retirement. One thing

9 that I will take into consideration will entail escalating the medical and long term care contributions. I will also review the "what if" scenario so that I may be able to capture the aspects that could not have been foreseen (Kalyugina et al., 2015). This will entail the new tax implications, the effects that inflation may cause. I will also factor in al; the incomes that I will be receiving at that time, and this will entail the shares, the rental income, investments, and savings. Some of these projections may change depending on what happens in the financial markets because of the changes in the regulations, such as the tax allowances. This information will be used in determining the cash flows as per that time and how the money will be apportioned to various costs and initiatives. The draft will be in place so that a specific percentage of the wealth is taken to charity, while the remaining is passed down to my generation.

Insurance and estate planning Instead of maximizing my retirement contributions, I will maximize the level of investment.

However, I will consider purchasing life insurance and getting more of the health insurance cover during my last 15 years of active employment (Kalyugina et al., 2015). As for estate planning, I will set up a trust. Leaving money or other property to a beneficiary in a will may not provide the type of structure that is desired because the beneficiaries may end up using the property as they deem right. A trust will allow me to designate a trustee to manage my property according to the instructions. This will also help in preventing expensive legal interventions.

10 References Kalyugina, S., Strielkowski, W., Ushvitsky, L., & Astachova, E. (2015). Sustainable and secure development: facet of personal financial issues. Journal of Security & Sustainability Issues, 5(2).

Kaye, J.J., McCuistion, M., Gulotta, R., & Shamma, D.A. (2014, April). Money talks: tracking personal finances. In Proceedings of the SIGCHI Conference on Human Factors in Computing Systems (pp.

521-530).

Petty, J.W., Titman, S., Keown, A.J., Martin, P., Martin, J.D., & Burrow, M. (2015). Financial management: Principles and applications. Pearson Higher Education AU.