Final Project Personal Financial Plan PDF

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RUNNING HEAD: FINAL PROJECT PERSONAL FINANCIAL PLAN

FIN-250 Final Project Personal Financial Plan Anthony Malcom SNHU Professor Mann 8/13/20

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Final Project Personal Financial Plan

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WORKSHEET 1 - PERSONAL FINANCIAL GOALS WORKSHEET Make sure your goals are realistic and stated in specific, measurable terms. In addition, prioritize your goals and identify a specific time frame within which you would like to accomplish them. The listing below is not meant to be all-inclusive, but merely to provide a framework within which goals can be formalized.

Short-Term Goals (less than 1 year)

PRIORITY LEVEL

GOAL

DESIRED ACHIEVEMEN T DATE

ANTICIPATED COST $1500 I still live at home for the moment so my expenses are low.

High

10/17/2020

Pay off outstanding bills

Low

8/17/2020

Pay off outstanding credit cards Purchase adequate property, health, disability, and liability insurance

High

8/17/2020

Low

11/26/2020

$2,500

Purchase a major item-Buy a motorcycle

Medium

7/25/2020

$3600 plus insurance of $215 for a year.

Finance a vacation or some other entertainment item

Low

7/17/2020

$250 leave for vacation today

Accumulate emergency funds equal to 3 months' living expenses

$0 I have no outstanding bills $375

Intermediate-Term Goals (1 to 10 years) Save funds for college for an older child Save for a major home improvement Save for a down payment on a house

Low Low High

7/13/2030 5/12/2025 6/20/2022

Pay off outstanding major debt

Low

5/14/2023

Finance very large items (weddings)

Purchase a vacation home or time-share unit

Low

Low

10,000 $5,000 10,000 $0 I have no outstanding major debt and plan to keep it that way.

7/17/2030

$0 I do not plan on getting married in next 10 years.

7/17/2030

$0 I don't want to be part of a time share club they are bad investments.

Final Project Personal Financial Plan

Finance a major vacation (overseas)

3

Medium

$3,000 vacation to the UK and Ireland.

7/17/2025

Other intermediate-term goals (specify)

Long-Term Goals (greater than 10 years) Save funds for college for a young child Purchase a second home for retirement Create a retirement fund large enough to supplement your pension so that you can live at your current standard Take care of your parents after they retire Start your own business Other long-term goals (specify)

Low Low

7/13/2040 4/28/2060

$10,000 $25,000

Medium

7/13/2060

$100,000

High

7/19/2035

$20,000

High

6/16/2031

$15,000

WORKSHEET 2—Financial Objectives Worksheet The generic objectives provided are typical for people of all ages and are geared to assist you with your goal setting. Please rank the objectives on the following scale. 0 – Not applicable at this time 1 – Not important 2 – Somewhat important Financial/Personal Objectives Becoming more financially knowledgeable Improving record keeping methods Finding a life partner Starting a family Acquiring additional home furnishings Reducing revolving debt Increasing savings Reducing taxes Paying off student loans Evaluating insurance needs Increasing insurance protection Advancing in current career Changing careers Increasing investment diversification Increasing investment return

3 – Important 4 – Very important 5 – Crucial 0

1

2

3

4

5

x x x x x x x x x x x x x x x

Final Project Personal Financial Plan Starting a small business Planning for children’s education costs Saving to return to college Purchasing a vehicle Saving for the down payment on a home Purchasing a home Caring for parents Investing an inheritance Saving for retirement Retiring early Traveling extensively in retirement Giving to charity Transferring estate assets Other:

4 x x x x x x x x x x x x x

Financial planning has always been a kind of foreign idea to me until about the last year or two. I recently just started an IRA and started to put myself on a budget with my spending. I am actively trying to improve my financial planning and have been doing research into different types of investments. I feel less stress and anxiety when I am on top of my finances.

When I filled out worksheet 1 short term goals, I put down having an emergency fund for at least 3 months’ worth of living expenses. It took a little bit to figure out my potential living expenses but when I did, I figured out I would need about $1500 in savings. I could easily put away $2500 which is probably what I will do just to have a cushion. I chose that I would meet this goal in about 3 months. One reason my monthly expenses is so low for 3 months is that I still live at home while I am in college, so my expenses are very minimal. I pay my car and truck insurance (I own my vehicles out right) buy my own food pay for my cell phone and gas. I work part time about 3 days a week as the manager for my family owned business where I have helped my parents cut expenses and grow the business by about 75% in terms of sales, so in return my parents don’t charge me rent or utilities for which I am very fortunate. I have no outstanding bills

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and I only owe about $251 on an interest fee credit card. I am leaving today for vacation in OCMD, so I plan on only spending $250 on food and drinks as well as maybe some souvenirs. I put purchasing insurance at a low importance and only allocated about $2500 to purchasing disability and liability insurance. I am self-employed, I have a company that I get 1099’d through for working with my family on top of what I make with my business itself. I also just recently started a business with my brother and our best friend. I have personal health insurance through my state at no cost to myself due to my income and being in college. Both my businesses have disability and liability insurance coverage for me when I am working through either company. I have thought about purchasing personal disability coverage just to cover and gaps in the coverage. When looking at my intermediate goals having an adequate down payment for a house is something that I would like to accomplish in the next year or two. Paying for a home improvement and saving for college for an older kid are low priority for me because for 1) I don’t own a house yet so no reason to do any improvements and 2) I do not plan to have any kids. I do however plan on taking a vacation to the UK and Ireland within the next 5 years. I plan to spend about $3,000 dollars on this trip. Taking a look at my long-term goals I hope to have by the time I am 65 about $100,000 or so put away for retirement to supplement my social security benefits. What’s very High on my long-term goals is to take care of my parents I have though many times about buying a house for my parents if I was well enough off to do so. My parents have supported me in all I do and have given me a lot so taking care of them after they retire is the least, I could do for them. Another high priority item is to start a business or in my case maintain or sell my existing businesses, whichever is more profitable and financially smart.

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On worksheet 4 the balance sheet, I have about $4174 in cash, checking accounts and savings accounts. I don’t have any investments currently which is something I am working on. I am not a big fan of the stock market, but I am not against having a diversified portfolio that includes stocks as well as other investments. I currently have about $719 in my IRA which lost some money during Corona. I currently put $15 a week into my IRA but I am thinking about upping that to $25 a week which according to my IRA projections should give me about $200,000 by the time I am 65. That’s an increase of about $80,000. I own my truck and car outright. Their value is about $20,400. I own $500 worth of furniture and have about $1605 in guns. Both my businesses market values equal about $100,000. My total asset value is $127,398. On my liabilities and debts, I have a $251 balance on a zero-interest card and owe $4000 to my dad for helping me out with my truck. I have $4,083 currently in college loans which I predict will be no higher than $10,000 by the end of February when I complete my degree. This makes my total debt $8,334 currently and my net worth approximately $119,064.

On the last worksheet the simplified income worksheet I guessed the best I could on what my yearly income and taxes are. They change every year based on different factors. My approximate food, clothing, transportation and recreational expenses for a year are $7916. I believe this number to be little higher than the actual cost, but I currently don’t keep the best financial records. Based on my part time pay and expenses I should have about $11,254 a year in net income. Again, I am not sure if this is completely accurate, but I got as close as I could. This worksheet has made me want to keep better records and be a little more on top of my finances.

W

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WORKSHEET

Balance Sheet - Calculating Your Net Worth

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Assets Cash Checking Savings/CDs Money Market Funds Other Monetary Assets A. Monetary Assets

B.

Mutual Funds Stocks Bonds Life Insurance (cash-value) Cash Value of Annuities Investment Real Estate (REITs, partnerships) Other investments Investments

C.

401(k) and 403(b) Company Pension Keogh IRA Other Retirement Plans Retirement Plans

D.

Primary Residence 2nd Home TimeShares/Condomi niums Other Housing Housing (market value)

E.

Automobile 1 Automobile 2 Other Automobiles Automobiles

V al u e + + +

A.

$500 $3,669 $5 $0 $0

+ =

$4,174

+ +

$0 $0 $0

+ +

$0 $0 $0

+

B.

+ =

$0 $0 $0

C.

$0

+ + +

$0 $719

+ =

$719 $0

+

$0 $0

+ + D.

=

+

E.

+ =

$0 $0 $5,700 $13,500 $1,200 $20,400

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WORKSHEET

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F.

Collectibles Boats Furniture Other Personal Property Personal Property

G.

Money Owed You Market Value of Your Business Other Other Assets

G.

+ + =

H.

Total Assets (add lines A through G)

H.

=

$0 $0 $500

+ +

$1,605

+ F.

$2,105

=

$0 $100,000 $0 $100,000

$127,398

Balance Sheet - Calculating Your Net Worth (continued) Liabilities or Debts Current Bills I (unpaid . balance) Visa Master Card Other Credit Cards J Credit Card . Debt

Value I .

$0

+ + J .

=

+ + + K .

=

$251 $251

$0 $0 $0 $0

$0

Automobile 1 Automobile 2 Other Automobile Loans L Automobile

$0

$0

First Mortgage 2nd Home Mortgage Home Equity Loan Other Housing Debt K . Housing

$0

=

+

$4,000 $0

L

+ =

$4,000

Final Project Personal Financial Plan

9 . Loans

. $4,083

College Loans Loans on Life Insurance Policies Bank Loans Installment Loans Other

$0

+ +

$0 $0

+ +

M . Other Debts

M .

=

Total Debt N (add lines I . through M)

N .

=

Net Worth H . Total Assets N Less: Total . Debt O Equals: Net . Worth

H . N . O .

$0 $4,083

$8,334

$127,398

+

$8,334

-

$119,064

=

Worksheet 5 - Simplified Income Statement Worksheet Your Take-Home Pay A.

Total Income

B. C.

Total Income Taxes After-Tax Income Available for Living Expenditures or Take-Home Pay (line A minus line B)

A.

20,000

-

B.

830

=

C.

19170

Your Living Expenses D.

Total Housing Expenditures

+

D.

E. F.

Total Food Expenditures

+

E.

1800

G.

Total Clothing and Personal Care Expenditures Total Transportation Expenditures

+ +

F. G.

1000 2616

H. I.

Total Recreation Expenditures Total Medical Expenditures

+ +

H. I.

2500

J. K. L.

Total Insurance Expenditures Total Other Expenditures

+ +

J. K.

Total Living Expenditures (add lines D through K)

=

L.

7916

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C.

Total Available for Savings and Investment After-Tax Income Available for Living Expenditures or Take-Home Pay

L.

Total Living Expenditures

M.

Income Available for Savings and Investment (line C minus line L)

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WORKSHEET

C.

19170

-

L.

7916

=

M .

11254

Worksheet for the Lease versus Purchase Decision Cost of Purchasing

a. b. c. d.

$48,55 0 $5,000 $49,32 0

Agreed-upon purchase price Down payment Total loan payments (monthly loan payment x ___ number of months) Opportunity cost of down payment

$3,000 $28,30 4 $29,01 6

[opportunity cost rate x number of years x line b]

e.

Less: Expected market value of the car ar the end of the loan

f.

Total cost of purchasing Cost of Leasing

g. h. i.

Down payment (capitalized cost reduction) + security deposit Total lease payments (monthly lease payment x ___ number of months) Opportunity cost of total initial payment

$5,000 $21,88 2

[opportunity cost rate x number of years x line g]

$3,000 $0 $0 $29,88 2

j. k.

Any end-of-lease charges (e.g., excess mileage), if applicable Less: Refund of security deposit

l.

Total cost of leasing Purchasing the vehicle saves you

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WORKSHEET

$866

Worksheet for Calculating the Maximum Monthly Mortgage Payment and Mortgage Size for Which You Can Qualify

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Method 1 Determine Your Maximum Monthly Mortgage Payment Using the Ability to Pay, PITI Ratio. a.

b.

c.

d.

Monthly income (annual income divided by 12) Times 0.28: Percentage of PITI (Principal, interest, taxes, and insurance) to your monthly gross income that lenders will lend in the form of a mortgage loan

$5,500

(multiply line a by 0.28) x 0.28 Less: Estimated monthly real estate tax and insurance payments Equals: Your maximum monthly mortgage payment using the 28% of PITI ratio To Determine the Maximum Mortgage Loan Level Using the Maximum Monthly Mortgage Payments as Determined Using the PITI Ratio (line d): Step 1: Monthly mortgage payment for a $10,000 mortgage with a 15 year maturity and a 5.0% interest rate (using Table 8.1) Step 2: Maximum mortgage level = maximum monthly mortgage payment (line d) divided by the monthly mortgage payment on a $10,000, 5.0%, 15 year mortgage (step 1 above) times $10,000 = (line d/step 1) x $10,000

=

$1,540

-

$624 $916

=

47.74

=

$191,872

=

Method 2 Determine Your Maximum Monthly Mortgage Payment Using the Ability to Pay, PITI Plus other Fixed Monthly Payments, Ratio. e. f.

Monthly income (annual income divided by 12) Times 0.36: Percentage of PITI + current monthly fixed payments to your monthly gross income that lenders will lend in the form of a mortgage loan

$5,500

$1,980

g.

-

$0

h.

and allimony payments Less: Estimated monthly real estate tax and insurance payments Equals: Your maximum monthly mortgage payment using the 36% of PITI + other fixed

-

$624

Monthly payments ratio (line f - g - h)

=

$1,356

i.

x 0.36

=

(multiply line a by 0.36) Less: Current nonmortgage debt payments on debt that will take over 10 months to pay off and other monhtly legal obligations such as child support

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To Determine the Maximum Mortgage Loan Using the PITI Plus Other Fixed Monthly Payments Ratio (line i): Step 1: Monthly mortgage payment for a $10,000 mortgage with a 15 year maturity and a 5.0% interest rate (using Table 8.1) Step 2: Maximum mortgage level = maximum monthly mortgage payment (line i) divided by the monthly mortgage payment on a $10,000, 5.0%, 15 year mortgage (step 1 above) times $10,000 = (line i/step 1) x $10,000

47.74

=

$284,038

=

Method 3 Determine Your Maximum Mortgage Level Using the "80% of the Appraised Value of the House" Rule. j. k. l. m.

Funds available for the down payment and closing costs Less: Closing costs Equals: Funds available for the down payment (the 20%) Times 4: Maximum mortgage level using the "80% of the appraised value of the house" rule (the 20% down, line l, times 4 equals the 80% you can borrow)

Conclusion: Maximum Mortgage Level for Which You Will Qualify (the lowest of the amounts using method 1, method 2, or method 3)

$68,849

x4

-

$8,849

=

$60,000

=

$240,000

=

$191,872

Looking at long-term financial goals is a key idea in personal finance. Long-term goals take more consideration and critical thinking than short term finance goals but are equally as important. They require a lot of planning and can be very time consuming. The time period for achieving a long-term goal is usually longer than a year. For my long-term goals, I chose to look at getting a mortgage for a house and leasing or purchasing a new vehicle. For the milestone we were given the choice to do either worksheet 9

Final Project Personal Financial Plan or 11 or you could do both. I chose to complete both worksheets, since they are both required at the end ...