Finance Project Proposal Assignment Help

Executive Summary

Our client Linda and Vincent, have approached us to manage the funds, and achieve their need of asset accumulation, using medium to long term finances, available to them.

We have offered them a combination of various products that can be used and a plan which might be useful, keeping in mind the risks attached and other key outflows, which are foreseen in future.

We have recommended a mix of insurance products, repayment of debts, saving extra money using managed funds, so that both, Linda & Vincent can also save some funds for future, along with buying a house and meeting their day to day needs.

The client needs to pay off the home loan quicker and therefore would be able to use the same amount for investments at a later stage.

Investment into superannuation reduces the marginal tax rate. Reduction in tax would allow faster growth of superannuation. In the long term, it will help in reaching the retirement goal and having a living expense to meet all the social needs, maintaining the social status as well.

Almost everyone wants to get maximum satisfaction from each and every available dollar. Majority of mid term and small term goals cover buying a car or a house, advanced studies, family holidays, self sufficiency after retirement, or attrition.

To be fully satisfied, everything needs to be prorated. Proper money management is not piece of cake for everyone. Proper funds management is necessary.

A financial planner might help you in achieving economic satisfaction, personal & financial goals.

It helps one to control the financial affairs by avoiding insecurity, excessive debts, and bankruptcy.

A financial plan makes us safe and sound in terms of money matters. A person can easily define future economic needs.

The plan also helps to identify the risk attached with any investments, or other personal or economic risks.

It gives one, sound knowledge of resources available and also helps the optimum utilization of those resources.

The effectiveness of obtaining, retaining, and using the funds is developed for the lifetime.

A peace of mind is attained, as there is a better control on own economic resources.

The study/analysis would help the client to plan better and also be aware of specific and non-specific needs.

Financial worries would be reduced by being future-oriented, having a view of future expenses and personal economic goals.

The financial planning is a lengthy process, however it covers 6 steps. These steps, if followed accurately might help in getting the best plan. We have also followed the same approach in our study. These steps are:

1. Determining the current financial position i.e. self analysis
2. Defining the mid term to long-term goals, which you need to achieve apart from day to day living and basic needs.
3. Defining the various alternatives that can help in achieving the aforesaid goals.
4. Evaluation of all the alternatives. Defining all the related pros & cons, which are attached to each alternative?
5. Defining a financial plan/ this plan be effective and should be practical, i.e. it should be such that it can be put to use.
6. Revisiting the plan and keeping oneself updated about regular changes in the economy that might create a need to re-evaluate the shared plan, or goals

Reasons for this advice 

Vincent and Linda earn $178,000 p.a. +SG ($83,000+$95,000). They have to pay $24,960 p.a. as rent. Also after all the calculative expenditures they are able to save $3,000 per month, i.e. $36,000 p.a.

Vincent & Linda are seeking advice, so as to ensure that they are able to clear all the debts and also buy a house for themselves, considering all the risks attached with the income.

Things that need to be kept in mind are as below:

• Vincent is having a risk of heart disease, and also he fears losing job. We cannot rely on the total income.
• We are unaware of the future, and a scope should always be there, that if any of the job is lost, then also the family is able to survive with the given situation.
• Julie is 3 years old and would be going to school. Going forward there will always be an increasing trend in the family expenditures.
• The job –loss of Linda in unforeseen factor, however as nobody is aware of the future, it is also one of the constraints. Linda is earning at a higher rate than Vincent.
• So, insurance for job is also necessary for both of them. Nowadays, there are various products in the insurance market, wherein individuals can keep their income flow secured. Even if there is no job, the monthly salary is paid by insurance companies, for a small period of time, or until the person gets another job.

For this advice to be effective, we have also kept in mind that the client needs some future savings, along with luxury benefits like a house.

Buying of a house is not a short term goal; however they are willing to fulfil this goal by a medium term or long term investment. The family does not want to sacrifice on the current standards of living, and also does not want to compromise on the basic needs. They want to continue with their luxury benefits as they have been doing in the past.

Linda is a very conservative type of investor. Their profile is so air-tight, that they do not have a scope of any losses. Risk taking capability is too low.

However, we are aware that higher the risk, higher is the return on investments. The strategy we have shared is supporting their conservative approach.

The household expenses and managing of lifestyle is a necessary factor which is governing our strategy. The client can also apply superannuation, as that would not increase the risk, however increase the capability of paying off the debts on or before time.

The insured amount would also cover the risk, and when the client is risk free then investments will be better. The client would be in a better off position to pay for all other debts like credit card loans, home loans, car loan etc.

The age of clients is also one of the factors for sharing such strategy. They are in 30’s, and are capable of earning and growing in their professional careers. It is assumed that the increase per year in salary would be covering the inflation rate as well.

If the inflation rate is not accommodated then the investments will not reap any benefits to the client.

We have segregated basis of our advice into two factors:

a). Personal Factors

b). Economic factors

A).Personal Reasons

Here in this case, personal reasons are as below:

• Maintaining the current living style
• Taking care of health of Vincent
• Meeting basic needs of the family
• Family health and immediate needs
• Unforeseen circumstances, like job loss
• Maintaining social circle, with friends and family
• A vacation trip in a year for the family

B).Economic Reasons

Here in this case, economic reasons are as below:

• The rates of inflation vary, and investments’ returns are dependent on the same.
• The government policies changes also affect daily value of money.
• Insurance amounts, premium and investments may vary every year.
• The fees will also be additional, if additional services are required for the future.
• The tax portion is not covered. All the income cannot be exhausted in various fund, expenses, savings and investments. As they would also be required to pay taxes to the government as per the country’s local legislation. i.e tax rules and tax rates also need to be covered.
• The tax will also be there on the returns on investments. As it will also form a part of the annual incomes going forward.
• The savings will also generate some interest that is an income to the client.
• The school fee of the child may vary every year. It would not remain fixed.
• The home loan rates, credit card expenditures will also vary.

We have covered all the aspects in our study. As per the advice here, a set percentage has been assigned to all types of expenses. This strategy is useful for long term. As the inflows and outflows may vary every time, so Vincent & Linda can find out how much proportion is to be used towards which segment.

PERSONAL PARTICULARS

Personal details

Client 1

Client 2

Title

Mr

Mrs

Surname

Given and preferred names

Vincent

Linda

Home address

XXXXX

xxxxxxxx

Business address

Contact phone

Date of birth

17/1/1983

11/4/1983

Age

Sex

X

Male

Female

Male

X

Female

Smoker

Yes

X

No

Yes

X

No

Expected retirement age

Dependants (children or other)

Name

Date of birth

Sex

School

Occupation

Julie

2010

F

Child

F

Employment details

Client 1

Client 2

Occupation

Employment status

Self employed

X

Employee

Self employed

X

Employee

Not employed

Pensioner

Not employed

Pensioner

Permanent

Part time

Permanent

Part time

Casual

Contractor

Casual

Contractor

Other

Government

Other

Government

Business status

Sole proprietor

Partnership

Sole proprietor

Partnership

X

Private company

Trust

X

Private company

Trust

Notes

Any other person to be contacted? e.g. accountant, bank, solicitor, etc.

What my advice does not cover

My advice covers the risk of health and job of Vincent. However, it does not cover the life insurances and other luxuries (apart from the house) to be purchased in the near future.

Also, it is assumed that the income remains the same for next few years, with the same rates of interests.

The strategies covered in the current study are mainly useful discussion and can also put into action after having the strong discussions.

Where to find more information

This advice is based uses the information from the below document, which can be referred in future as well.

Document Name	Version	Date
Financial Services & Credit Guide (FSCG)	V1.1	1 January 2013

Strategy discussion

Financial strategies considered

• It is recommended to have three months expenses saved in case 2 persons are earning in a household. It becomes 6 months if there is a sole-earner. Here, in this case as Linda has just re-started working, the household expenses were taking care of Vincent. So, till Vincent has job & good health, they can fully save the salary of Linda.
• Considering, future risks in mind, One significant portion of Linda’s salary need to be invested towards insurance for unemployment of Vincent i.e. Income protection plans, and also insurance of health of Vincent. An emergency fund is a must in any portfolio.
• It is also suggested to keep aside a fixed amount every month for the house to be purchased. In case of the first payment to be made, 20% of the actual cost of the house would be required. If the amount is invested in such a plan wherein many banks offer doubling of capital in 3-5 years. That kind of maturity bonds can be considered, so at the end of that time period, they are able to make initial payment.

This amount set aside for purchasing a house can also be invested in a superannuation scheme, so that at the end of the stipulated time they are able to make maximum payment towards purchase of the house, leading to a small housing loan.

Ideal portfolio should be as below:

Not more than 25% allocated towards household expenses and managing lifestyle.

-Not more than 15% towards mutual funds & superannuation’s.

-Minimum of 5 % towards Insurance premiums- Here we need to have two insurances, so it can vary up to 8-10 %.

-Payments of a home loan, Car loan, credit cards, and home loans should not be beyond 30%.

-Balance 20-25% can be a saving for the house to be purchased, as well as the education of Julie

                Source : own study

How it works

Total Net worth= Assets- Liabilities. Here the net worth is $3,000 per month; However, Linda feels that she would be able to save $4,500 per month.

Description		Amount
Total Income per annum		1,78,000.00
Less	Not more than 25% allocated towards household expenses and managing lifestyle.	44,500.00
Less	Not more than 15% towards mutual funds &superannuation.	26,700.00
Less	Minimum of 5 % towards Insurance premiums- Here we need to have two insurances, so it can vary up to 8-10 %.	17,800.00
Less	Payments of a home loan, Car loan, credit cards, and Home loans should not be beyond 30%.	53,400.00
	Balance can be a saving for the house to be purchased, as well as the education of Julie.	35,600.00	20%

    Source : Own study

Benefits of this strategy

This strategy is the correct one to be followed, as it covers the potential risks, and also focuses on the future needs of Julie’s education and also, buying of a house. Once 20% of the value of the house is saved, the family can save on the rent they have been paying at present. Thus the rental income saved can be a part of EMIs to be paid for the rest of the amount.

Outcomes

The strategy followed here has a simple concept.

If any family has two incomes, the monthly chores including the debt repayments should be managed by single income (higher one). The entire second income can be saved and built for future consumption. Going forward, the accumulated wealth can also be used to pay off debts, if there is a loss of the second income.

Projected 1-5 year Cash flow

1. It is important to stress-test the cash flow before assuming large liabilities. It is also advised to include monthly debt repayments as part of the emergency fund.
2. If a family has two incomes, the emergency fund can be 6 times of monthly living expenses including the debt repayments. This multiplier can be 8 if the family has single income.
3. (As per the founder of Navera Consulting, a company that is providing their services in wealth-mapping and investor-learning solutions) During times of stress, you will have to anyway give up your discretionary expenses such as occasional fine dining and exotic vacations. So, when will you enjoy life’s luxuries? Importantly, do not sharply cut your discretionary expenses to buy a house that you cannot otherwise afford.
4. If it is a choice between occasional luxury and a larger house, choose luxury to enjoy life and reduce the stress on your cash flow (hindubusinessline, 2013).  

	Annual Inflow	Annual Outflow
Rent for a two-bed room apartment		24,960.00
Vincent’s salary	83,000.00		+ Super Guarantee
Linda’s salary	95,000.00		+ Super Guarantee
Savings		36,000.00
Payment-Mortgage		54,000.00
One time fee for advisors		3,300
	178,000.00	111,660.00
Balance amount	59,740.00
Cr card debt
Car loan
Insurance premiums
Julie’s education

Source: Own study

As per the assumptions, starting from July’13. It would take 5 years for Linda & Vincent to buy their own house

Projected 5-12 year cashflow

After 5 years the position will be as below:

	Cash Inflow	Cash Outflow
Rent for a two bedroom apartment		1,24,800.00
Vincent’s salary	4,49544.00		+Super Guarantee	Applied AWOTE index rate to annual salary
Linda’s salary	5,14,550.00		+Super Guarantee	Applied AWOTE index rate to annual salary
Savings		1,80,000.00
Total Payment-Mortgage after 5 years		2,70,000.00
Total	9,64,094.00	5,74,800.00
Balance amount	3,89,294.00
Cr card debt
Car loan
Insurance Premium
Julie’s education

Source : own study

Out of the balance amount, even if 20% is used towards debts, insurances, and another 40% towards the household. Then also they are left with 40% i.e. Approx. $155,000, Out of this half ($77000) can be invested for future, and the other half can be used for the payment of a ready to move-in house to be purchased. Balance amount can be paid via home loan.

Assuming that $77,000 is 20% of the full value of the house. A house can be purchased with near about of value $385,000.

Per year home loan interest will be @7. 5% of the balance (385,000-77,000=30,800).

Now, per year home loan interest to be paid will be 30,800*7.5%= $23,100.

Keeping in mind, $180,000 is the saving, and the rental amount will also add to it, $24,960 pa.

The rental amount which was being paid earlier can be used towards payment of a home loan.