Financial planning

Assignment 2:

Goal Setting

John Smith, Client

February 28, 2019

Dear Mr. Smith,

I understand that you are concerned about your current financial situation and seek to accomplish several specific financial goals. The first goal you indicated includes eliminating your personal credit card debt. You are concerned about the payments that you make each month towards your credit cards and would like to fully eliminate the debt, as you plan to marry your fiancée in three years and would like to begin the marriage without any prior financial liabilities. You are willing to make major lifestyle adjustments to pay off the credit cards. You feel that while this may be difficult and will result in significant lifestyle changes for a few years, the prospect of no longer having the burden of credit card payments in the future will result in additional financial freedom. Your total current outstanding credit card debt is $8,000, at an interest rate of 15%. Since you wish to eliminate the debt by March 31, 2022, a monthly payment of $277.62 must be made, assuming no further charges are made on the card (see Appendix A).

In addition, you and your future bride plan to have a stunning wedding in Santorini, Greece, in three years. Your fiancée has identified a specific hotel, the Astra Suites, where she would like to have the wedding and honeymoon over a period of one week. The wedding will be small, with immediate family and a few close friends, who are willing to pay their own plane fares. The cost to you and your fiancé will be for the lodging, wedding services, your own round-trip tickets, food and drinks. Astra Suites has agreed to a committed date of August 15, 2022, for an all-inclusive package price of $11,000 that must be paid in full by March 31, 2022. Your parents have agreed to pay for half of the wedding, but you will need to pay the remaining $5,500. To meet Astra’s requirements for the payment of the wedding, you must save $156.34 per month, assuming a 1.5% interest savings rate per year (see Appendix B).

You have set a date of March 31, 2022 to meet both goals, since Astra Suites requires their payment by that date, and meeting both goals at that time would allow you a few months before the wedding to accommodate any unforeseen costs with the discretionary income you will gain. You anticipate beginning your new financial plan on April 1, 2019.

While these numbers will result in significant changes to your lifestyle, I believe they are 100% achievable given your current income of $40,200 per year and tax bracket of 13.78%. To achieve them, I recommend reducing expenditures on discretionary items such as eating out and entertainment activities. We can discuss specific expenditures in our next session.

I wish you the best of luck in attaining your financial goals and look forward to meeting with you again very soon. If any significant changes occur that affect your monthly income or goal requirements, we can certainly reassess the monthly savings or payment amounts.

Kind regards,

YOUR NAME

Appendix

A. Calculation of payment required for debt elimination calculated using the following:

Interest (r) = 15% APR / 12 months per year = .0125%

Period (n) = 36 months

PV = $8,000

FV = $0

PMT = r(PV) / [1 – (1 + r)]-n

PMT = .0125 (8,000) / [1 – (1+.0125)]-36

PMT = $277.323

B. Calculation of monthly savings required for wedding calculated using the following:

Interest (r) = 1.5% APR / 12 months per year = .00125%

Period (n) = 36 months

PV = $5,500

FV = $0

PMT = r(PV) / [1 – (1 + r)]-n

PMT = .00125 (5,500) / [1 – (1+.00125)]-36

PMT = $156.34