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PERSONAL FINANCIAL PLAN

Date:10/25/2020

Economics of Personal finance

By: Jasmin Linthicum

Part 1: Foundation of the Plan

In this case we will prepare a financial plan for Calvin, who is a middle-aged person and is aiming to achieve his goals of having enough savings in order to allow him to retire. The savings will eventually cater for his needs in his time of retirement. At this time, Calvin has made a couple investments which he is unsure of whether or not will go through well. Calvin is also not certain whether he has sufficient resources as far as finances are concerned to take him through the rest of his life. (Murphy & Yetmar, 2010)

Part 2: Managing Assets

In this part we will do a calculation of Calvin’s total net worth as far as his assets are concerned. This will be achieved by taking a sum of all his assets and then deducting all of his liabilities. Once we find out that Calvin has a negative net worth, this will mean that he has to focus more on reducing his debts to cover for it. In asset management we will look at things such as cash and other equivalents of cash, accounts connected to brokerage, the value of his home etc. Each of these assets will be added up and balanced with his liabilities. (Murphy & Yetmar, 2010)

Part 3: Managing Liabilities

Once we are done calculating Calvin’s personal net worth, checking out the real value of his liabilities will be the next thing, with an aim of working to bring it down. Working on reducing the debts with high interests such as those of credit cards as well as personal loans will be key. Elimination of most if not all debts always comes in handy. In this case we will take a good look at all debts that are under Calvin’s name and get those ones cleared. (Gitman, Joehnk & Billingsley, 2013)

Part 4: Managing Risk

In this part we will have a look at how to better manage risks by determining how much Calvin needs to be able to cover them through insurance. Some of the risks that Calvin needs to take a closer look at include but are not limited to insurance on auto, health insurance, insurance on life as well as a homeowner’s insurance cover. Different people have different needs as far as insurance is concerned and thus Calvin’s insurance needs are also different from other people’s. Factors that will definitely affect these choices of insurance will include profession, age, status of economy, health as well as family status. (Gitman, Joehnk & Billingsley, 2013)

Part 5. Investment Strategy

Calvin will need to determine how much of conservancy he needs in regards to investment; all this based on the initial financial projections. If Calvin manages to use an asset allocation of about 45%, this will keep his risks at par with the already set overall goals. This will also be able to provide returns sufficient enough to cover the set goals. (Altfest, 2004)

Part 6: Retirement and Estate Planning

In this personal financial plan, Calvin will be required to get the services of a lawyer in order to help him with getting documents for planning an estate. The same lawyer will be in a position to help with coming up with a will as well. (Altfest, 2004)

Other retirement plans will be investing in a divided portfolio or bonds which will eventually give Calvin a constant cash flow in addition to his pension and other benefits of retirement. (Altfest, 2004)

WORKSHEETS:

Worksheet on Calvin’s assets:

· Cash & equivalents of cash – $100,000

· Brokerage account – $315,000 with a current valuation of = $200,000

· Retirement Annuity ($250,000 with a current valuation of = $130,000

· Calvin’s account = $520,000), with an employer match of = 3%

· Value of home = $388,000 with staggering = $120,000 mortgage rated at 4.5% on interest

· Calvin’s three-year-old car is valued at = $27,000. With a balance on loan = $9,500.

Worksheet on Calvin’s liabilities:

· Vehicle loan = $9,500

· Mortgage = $120,000

REFERENCES:

Altfest, L. (2004). Personal financial planning: Origins, developments and a plan for future direction. The American Economist, 48(2), 53-60.

Corlett, J. B., Corlett, P. G., Maree, J. W., & MacDougall, B. H. (2001). U.S. Patent No. 6,253,192. Washington, DC: U.S. Patent and Trademark Office.

Gitman, L. J., Joehnk, M. D., & Billingsley, R. (2013). Personal financial planning. Cengage Learning.

Murphy, D. S., & Yetmar, S. (2010). Personal financial planning attitudes: a preliminary study of graduate students. Management Research Review.