Personal Financial Planning, business and finance homework help

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Question Description


Review the material in Chapter 1 on Personal Financial Planning.

  • Define the financial planning process
  • List the elements of a good financial plan.
  • Identify and discuss the three most important personal factors and the three most important economic factors that affect your financial planning decisions.

Prepare 3 paragraphs


Complete the Assignment from, Personal Finance by Rachel Siegel and Carol Yacht (2009); Page 23. Exercise 2. See below:

Use the S.M.A.R.T. planning model and information in this section to
evaluate Alice’s goals (below).

a. pay off student loan
b. buy a house and save for children’s education
c. accumulate assets
d. retire
e. travel around the world in a sailboat.

Discuss your evaluations (p. 23).

Prepare a two page (double-spaced) essay. Cite references to material that you use in preparing the essay.

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CHAP TER 1 Personal Financial Planning INTRODUCTION Bryon and Tomika are just one semester shy of graduating from a state college. Bryon is getting a degree in protective services and is thinking of going for certification as a fire protection engineer, which would cost an additional $4,500. With his protective services degree many other fields will be open to him as well—from first responder to game warden or correctional officer. Bryon will have to specialize immediately and wants a job in his state that comes with some occupational safety and a lot of job security. Tomika is getting a Bachelor of Science degree in medical technology and hopes to parlay that into a job as a lab technician. She has interviews lined up at a nearby regional hospital and a local pharmaceutical firm. She hopes she gets the hospital job because it pays a little better and offers additional training on site. Both Bryon and Tomika will need additional training to have the jobs they want, and they are already in debt for their educations. Tomika qualified for a Stafford loan, and the federal government subsidizes her loan by paying the interest on it until six months after she graduates. She will owe about $40,000 of principal plus interest at a fixed annual rate of 6.8 percent. Tomika plans to start working immediately on graduation and to take classes on the job or at night for as long as it takes to get the extra certification she needs. Unsubsidized, the extra training would cost about $3,500. She presently earns about $5,000 a year working weekends as a home health aide and could easily double that after she graduates. Tomika also qualified for a Pell grant of around $5,000 each year she was a full-time student, which has paid for her rooms in an off-campus student co-op housing unit. Bryon also lives there, and that’s how they met. Bryon would like to get to a point in his life where he can propose marriage to Tomika and looks forward to being a family man one day. He was awarded a service scholarship from his hometown and received windfall money from his grandmother’s estate after she died in his sophomore year. He also borrowed $30,000 for five years at only 2.25 percent interest from his local bank through a family circle savings plan. He has been attending classes parttime year-round so he can work to earn money for college and living expenses. He earns about $19,000 a year working for catering services. Bryon feels very strongly about repaying his relatives who have helped finance his education and also is willing to help Tomika pay off her Stafford loan after they marry. Tomika has $3,000 in U.S. Treasury Series EE savings bonds, which mature in two years, and has managed to put aside $600 in a savings account earmarked for clothes and gifts. Bryon has sunk all his savings into tuition and books, and his only other asset is his trusty old pickup truck, which has no liens and a trade-in value of $3,900. For both Tomika and Bryon, having reliable transportation to their jobs is a concern. Tomika hopes to continue using public transportation to get to a new job after graduation. Both Bryon and Tomika are smart enough about money to have avoided getting into credit card debt. Each keeps only one major credit card and a debit card and with rare exceptions pays statements in full each month. Personal PDF created exclusively for zohar ( 8 PERSONAL FINANCE Bryon and Tomika will have to find new housing after they graduate. They could look for another cooperative housing opportunity or rent apartments, or they could get married now instead of waiting. Bryon also has a rentfree option of moving in temporarily with his brother. Tomika feels very strongly about saving money to buy a home and wants to wait until her career is well established before having a child. Tomika is concerned about getting good job benefits, especially medical insurance and family leave. Although still young, Bryon is concerned about being able to retire, the sooner the better, but he has no idea how that would be possible. He thinks he would enjoy running his own catering firm as a retirement business some day. Tomika’s starting salary as a lab technician will be about $30,000, and as a fire protection engineer, Bryon would have a starting salary of about $38,000. Both have the potential to double their salaries after fifteen years on the job, but they are worried about the economy. Their graduations are coinciding with a downturn. Aside from Tomika’s savings bonds, she and Bryon are not in the investment market, although as soon as he can Bryon wants to invest in a diversified portfolio of money market funds that include corporate stocks and municipal bonds. Nevertheless, the state of the economy affects their situation. Money is tight and loans are hard to get, jobs are scarce and highly competitive, purchasing power and interest rates are rising, and pension plans and retirement funds are at risk of losing value. It’s uncertain how long it will be before the trend reverses, so for the short term, they need to play it safe. What if they can’t land the jobs they’re preparing for? Tomika and Bryon certainly have a lot of decisions to make, and some of those decisions have high-stakes consequences for their lives. In making those decisions, they will have to answer some questions, such as the following: 1. What individual or personal factors will affect Tomika’s and Bryon’s financial thinking and decision making? 2. What are Bryon’s best options for job specializations in protective services? What are Tomika’s best options for job placement in the field of medical technology? 3. When should Bryon and Tomika invest in the additional job training each will need, and how can they finance that training? 4. How will Tomika pay off her college loan, and how much will it cost? How soon can she get out of debt? 5. How will Bryon repay his loan reflecting his family’s investment in his education? 6. What are Tomika’s short-term and long-term goals? What are Bryon’s? If they marry, how well will their goals mesh or need to adjust? 7. What should they do about medical insurance and retirement needs? 8. What should they do about saving and investing? 9. What should they do about getting married and starting a family? 10. What should they do about buying a home and a car? 11. What is Bryon’s present and projected income from all sources? What is Tomika’s? 12. What is the tax liability on their present incomes as singles? What would their tax liability be on their future incomes if they filed jointly as a married couple? 13. What budget categories would you create for Tomika’s and Bryon’s expenses and expenditures over time? 14. How could Tomika and Bryon adjust their budgets to meet their short-term and long-term goals? Personal PDF created exclusively for zohar ( CHAPTER 1 PERSONAL FINANCIAL PLANNING 9 15. On the basis of your analysis and investigations, what five-year financial plan would you develop for Tomika and Bryon? 16. How will larger economic factors affect the decisions Bryon and Tomika make and the outcomes of those decisions? You will make financial decisions all your life. Sometimes you can see those decisions coming and plan deliberately; sometimes, well, stuff happens, and you are faced with a more sudden decision. Personal financial planning is about making deliberate decisions that allow you to get closer to your goals or sudden decisions that allow you to stay on track, even when things take an unexpected turn. The idea of personal financial planning is really no different from the idea of planning most anything: you figure out where you’d like to be, where you are, and how to go from here to there. The process is complicated by the number of factors to consider, by their complex relationships to each other, and by the profound nature of these decisions, because how you finance your life will, to a large extent, determine the life that you live. The process is also, often enormously, complicated by risk: you are often making decisions with plenty of information, but little certainty or even predictability. Personal financial planning is a lifelong process. Your time horizon is as long as can be—until the very end of your life—and during that time your circumstances will change in predictable and unpredictable ways. A financial plan has to be re-evaluated, adjusted, and re-adjusted. It has to be flexible enough to be responsive to unanticipated needs and desires, robust enough to advance toward goals, and all the while be able to protect from unimagined risks. One of the most critical resources in the planning process is information. We live in a world awash in information—and no shortage of advice—but to use that information well you have to understand what it is telling you, why it matters, where it comes from, and how to use it in the planning process. You need to be able to put that information in context, before you can use it wisely. That context includes factors in your individual situation that affect your financial thinking, and factors in the wider economy that affect your financial decision making. 1. INDIVIDUAL OR “MICRO” FACTORS THAT AFFECT FINANCIAL THINKING L E A R N I N G O B J E C T I V E S 1. List individual factors that strongly influence financial thinking. 2. Discuss how income, income needs, risk tolerance, and wealth are affected by individual factors. 3. Explain how life stages affect financial decision making. 4. Summarize the basis of sound financial planning. The circumstances or characteristics of your life influence your financial concerns and plans. What you want and need—and how and to what extent you want to protect the satisfaction of your wants and needs—all depend on how you live and how you’d like to live in the future. While everyone is different, there are common circumstances of life that affect personal financial concerns and thus affect everyone’s financial planning. Factors that affect personal financial concerns are family structure, health, career choices, and age. Personal PDF created exclusively for zohar ( 10 PERSONAL FINANCE 1.1 Family Structure Marital status and dependents, such as children, parents, or siblings, determine whether you are planning only for yourself or for others as well. If you have a spouse or dependents, you have a financial responsibility to someone else, and that includes a responsibility to include them in your financial thinking. You may expect the dependence of a family member to end at some point, as with children or elderly parents, or you may have lifelong responsibilities to and for another person. Partners and dependents affect your financial planning as you seek to provide for them, such as paying for children’s education. Parents typically want to protect or improve the quality of life for their children and may choose to limit their own fulfillment to achieve that end. Providing for others increases income needs. Being responsible for others also affects your attitudes toward and tolerance of risk. Typically, both the willingness and ability to assume risk diminishes with dependents, and a desire for more financial protection grows. People often seek protection for their income or assets even past their own lifetimes to ensure the continued well-being of partners and dependents. An example is a life insurance policy naming a spouse or dependents as beneficiaries. 1.2 Health Your health is another defining circumstance that will affect your expected income needs and risk tolerance and thus your personal financial planning. Personal financial planning should include some protection against the risk of chronic illness, accident, or long-term disability and some provision for short-term events, such as pregnancy and birth. If your health limits your earnings or ability to work or adds significantly to your expenditures, your income needs may increase. The need to protect yourself against further limitations or increased costs may also increase. At the same time your tolerance for risk may decrease, further affecting your financial decisions. 1.3 Career Choice Your career choices affect your financial planning, especially through educational requirements, income potential, and characteristics of the occupation or profession you choose. Careers have different hours, pay, benefits, risk factors, and patterns of advancement over time. Thus, your financial planning will reflect the realities of being a postal worker, professional athlete, commissioned sales representative, corporate lawyer, freelance photographer, librarian, building contractor, tax preparer, professor, Web site designer, and so on. For example, the careers of most athletes end before middle age, have higher risk of injury, and command steady, higher-than-average incomes, while the careers of most sales representatives last longer with greater risk of unpredictable income fluctuations. Figure 1.1 compares the median salaries of certain careers. FIGURE 1.1 Median Salary Comparisons by Profession[1] Personal PDF created exclusively for zohar ( CHAPTER 1 PERSONAL FINANCIAL PLANNING 11 Most people begin their independent financial lives by selling their labor to create an income by working. Over time they may choose to change careers, develop additional sources of concurrent income, move between employment and self-employment, or become unemployed or reemployed. Along with career choices, all these changes affect personal financial management and planning. 1.4 Age Needs, desires, values, and priorities all change over a lifetime, and financial concerns change accordingly. Ideally, personal finance is a process of management and planning that anticipates or keeps abreast with changes. Although everyone is different, some financial concerns are common to or typical of the different stages of adult life. Analysis of life stages is part of financial planning. At the beginning of your adult life, you are more likely to have no dependents, little if any accumulated wealth, and few assets. (Assets are resources that can be used to create income, decrease expenses, or store wealth as an investment.) As a young adult you also are likely to have comparatively small income needs, especially if you are providing only for yourself. Your employment income is probably your primary or sole source of income. Having no one and almost nothing to protect, your willingness to assume risk is usually high. At this point in your life, you are focused on developing your career and increasing your earned income. Any investments you may have are geared toward growth. As your career progresses, income increases but so does spending. Lifestyle expectations increase. If you now have a spouse and dependents and elderly parents to look after, you have additional needs to manage. In middle adulthood you may also be acquiring more assets, such as a house, a retirement account, or an inheritance. As income, spending, and asset base grow, ability to assume risk grows, but willingness to do so typically decreases. Now you have things that need protection: dependents and assets. As you age, you realize that you require more protection. You may want to stop working one day, or you may suffer a decline in health. As an older adult you may want to create alternative sources of income, perhaps a retirement fund, as insurance against a loss of employment or income. Figure 1.3 suggests the effects of life stages on financial decision making. life stages Periods of a person’s life based on age and personal circumstances that reflect different needs, goals, and financial capabilities. assets Resources that can be used to create future economic benefit, such as increasing income, decreasing expenses, or storing wealth as an investment. FIGURE 1.2 FIGURE 1.3 Financial Decisions Related to Life Stages © 2010 Jupiterimages Corporation Early and middle adulthoods are periods of building up: building a family, building a career, increasing earned income, and accumulating assets. Spending needs increase, but so do investments and alternative sources of income. Later adulthood is a period of spending down. There is less reliance on earned income and more on the accumulated wealth of assets and investments. You are likely to be without dependents, as your children have grown up or your parents passed on, and so without the responsibility of providing for them, your expenses are lower. You are likely to have more leisure time, especially after retirement. Without dependents, spending needs decrease. On the other hand, you may feel free to finally indulge in those things that you’ve “always wanted.” There are no longer dependents to protect, but assets demand even more protection as, without employment, they are your only source of income. Typically, your ability to assume risk is high because of your accumulated assets, but your willingness to assume risk is low, as you are now dependent on those assets for income. As a result, risk tolerance decreases: you are less concerned with increasing wealth than you are with protecting it. Personal PDF created exclusively for zohar ( 12 PERSONAL FINANCE Effective financial planning depends largely on an awareness of how your current and future stages in life may influence your financial decisions. K E Y < < < < < T A K E A W A Y S Personal circumstances that influence financial thinking include family structure, health, career choice, and age. Family structure and health affect income needs and risk tolerance. Career choice affects income and wealth or asset accumulation. Age and stage of life affect sources of income, asset accumulation, spending needs, and risk tolerance. Sound personal financial planning is based on a thorough understanding of your personal circumstances and goals. E X E R C I S E S 1. Use Flat World’s My Notes feature to start keeping a written record of observations and insights about your financial thinking and behavior. You may be surprised at what you discover. In the process, consider how information in this text specifically relates to your observations and insights. Reading this chapter, for example, identify and describe your current life stage. How does your current age or life stage affect your financial thinking and behavior? To what extent and in what ways does your financial thinking anticipate your next stage of life? What financial goals are you aware of that you have set? How are your current experiences informing your financial planning for the future? 2. Continue your personal financial journal by describing how other micro factors, such as your present family structure, health, career choices, and other individual factors, are affecting your financial planning. The My Notes feature allows you to share given entries or to keep them private. You can save your notes. You also can highlight and right click on your notes to copy and paste them into a word document on your computer. 3. Find the age range for your stage of life and read the advice at moneybyageorlifestage/Money_and_Personal_Finance_by_Age_Life_Stage.htm. According to the articles on this page, what should be your top priorities in financial planning right now? Read the articles on the next life stage. How are your financial planning priorities likely to change? Personal PDF created exclusively for zohar ( CHAPTER 1 PERSONAL FINANCIAL PLANNING 13 2. SYSTEMIC OR “MACRO” FACTORS THAT AFFECT FINANCIAL THINKING L E A R N I N G 1. 2. 3. 4. O B J E C T I V E S Identify the systemic or macro factors that affect pers ...
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Tutor Answer

School: University of Virginia



Personal Financial Planning
Institutional Affiliation




Financial Planning Process
Financial planning process refers to a logical step by step process that is used by
individuals or financial planners to consider all aspects of an individual’s financial situation. This
is especially when an individual is formulating financial planning strategies and developing
sound financial recommendation based on the analysis (Siegel & Yacht, 2009). The process
begins by first defining the goals that the individual would like to achieve, the second step
involves assessing the current financial situation then identifying different choices that an
individual has. The next step involves selecting the right choice from the evaluated choices and
then assessing the results. It is important for the individual to redefine the goals and then
identifying new choices, evaluating the new choices at hand, choose the right choice and finally
assessing the resulting situation (Siegel & Yacht, 2009).
Elements of a good financial plan
A solid financial planning is critical for every individual since it allows the individual to
undertake his financial objectives and plan more effectively. A good financial plan therefore
must be realistic and m...

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Tutor went the extra mile to help me with this essay. Citations were a bit shaky but I appreciated how well he handled APA styles and how ok he was to change them even though I didnt specify. Got a B+ which is believable and acceptable.

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