January 23, 2022

You will create an imaginary person or future yourself, and you will work as a personal financial counselor for the person.

Format:

1. Use 11pts Cambria font /1.5 line spacing. Do not include irrelevant pictures to decorate the paper.

2. IMPORTANT: You must cite all references properly in the main text and attach the list of references. Follow the APA citation format.

Instructions:

You will create an imaginary person (or future yourself), and you will work as a personal financial counselor for the person. The final paper will be a professional-quality brochure to your client. You must use tables and figures effectively to show supporting evidence (data) of your recommendations.

Write a full report for the person for the various financial needs. You must list at least 3 problems to solve. Examples are personal/corporate tax problems, real estate, small business financing, auto insurance, home owners/renters insurance, life insurance, retirement planning, health insurance, and annuity, etc. State each problem in detail relating it with the person’s situation.

For each financial problem, your report must include (1) a table that describes the details of possible solutions, (2) a table to compare several solutions for each financial problem, and (3) supporting arguments with tables or graphs for the best solution you chose. It must be personalized advise rather than a general guide. The report should be based on associated data and actual quotes from real companies wherever possible using the exact characteristics of the client. It must clearly show the estimated monetary benefit of the recommended solution over the other options. This may require you to do some research into likely career and life paths of the fictional character and related financial earnings and risk. The evaluation will assess completeness of data, reasonableness of recommendations, effectiveness of presentation, and professionalism of the final document. You may not use financial planning software packages or commercially-marketed planning software for your report. It needs to be your own unique document. Submitting a report using a commercial product will render the project invalid.

A guide:

The goal of the project is the preparation of an Insurance Needs Assessment and Plan for yourself. The plan will comprise of a report on perceived future needs for managing risks such as automobile, homeowners, and life insurance, or retirement planning. You may also review options for health-risk management.

Project Phase 1: Develop a profile of risk management needs. This will require that you make predictions regarding how your future career and lifestyle might develop and prepare a related risk management needs assessment. The needs assessment should be shown on your proposal.

Project Phase 2: Develop a plan for yourself recommending the kinds and amounts of insurance coverage or risk management methods and justify your recommendations.

PAUL’S FINANCIAL PLAN 2018 13

PERSONAL FINANCIAL PLAN FOR PAUL WALKER

April 19, 2018

Prepared by (Students name)

P.O Box (Box number)

(Physical Address)

(Email address)

Clients Personal Information	Details
First name	Paul
Birthdates	13/05/1969
Gender	Male
Status	Married
Retirement Age	66
Life Expectancy	85
Risk Tolerance level	Moderate
Life Insurance	$100,000
Term Insurance	$190,000
Cash Value Insurance	$9,700
Net Worth
Total assets	$743,254
Total liabilities	$574,500
Cash Flow
Income	$81,240
Total expenses	$46,750
Pension & Social Security Information (Annual)
Pension	$10,000
Pension rate	0.00%
Social security start age	66
Social security rate	2.5%
Social security amount	$65,000

FINANCIAL GOALS

Your Details

Table 1: Current net worth statement

Details	Current situation
Total Assets	$743,254
Income (Annually)	$81,240
Net worth (Annually)	$637,754
Working Assets	$547,103
Income from working assets (Annually)	$35,240
Total Liabilities	$574,500

Your problems

· You have a problem managing your cash flow

· Underutilization of your assets for maximum benefits

· You do not have proper insurance coverage for yourself and your family.

· You don’t have a proper retirement plan to fund your retirement lump sum fund.

Your Goals

The following are your goals in their order of importance from the highest to the lowest. All the cost is stated according to the value of the dollar today.

· You would like to retire at the age of 65.

· Achieve an annual financial growth of 4% that translates to an income after-tax of $6,545 until the last day of your life expectancy of 85 years.

· You wish to start a groceries store after retirement to boost his income (the start capital for a groceries store is $250,000).

· You want to have saved $22,162 annually ($1,847 monthly) to meet your educational goals.

· You want to buy a retirement home at a cost of $250,000 with annual expenses of $12,000.

EXECUTIVE SUMMARY

1) Cash Management

To effectively manage your cash flows, we have explored three options.

· First, you can increase your income by optimizing your working assets, and investing more on life insurances since it is unlikely to get a salary increase at the moment.

You can scale down on your expenses by cutting down on some unnecessary expenditures. You can reduce your house expenses to $17,210 after reducing on surplus buying of food and impulse buying of house items and clothing. With increased investment and reduced expenses, your annual savings will increase by $11,560 per year which is a 31% increase. The expected expenses show an increase in the table below due to the increase in insurance premiums for the additional insurances (Kahn & Jain, 2005). The premiums are treated as expenses at the moment but can materialize to income in future.

Details	Current	Expected
Total income	$90,940	$108,075
Total Expenses	$53,455	$59,030
Savings	$37,485	$49,045

· Second, you can choose to invest some of your surplus on some stocks and bonds which have a higher rate of interest instead of spending it on unnecessary vacation trips and hosting luxurious parties.

Bonds, especially government bonds, are not affected by inflation and have a high return. Standard bonds of $1,000 have a 5% coupon rate which means for each $1,000 bond you reap in $50. There are numerous enterprises in the NY stock exchange whose stocks are good and stable (Brinson, Singer, & Beebower. 1991). Cutting down on your trips and parties will require a lot of discipline which will save you enough cash to invest in bonds and stocks.

Details	Current	Expected
Stock and Bonds	–	$6,900
Trips and Luxury expenses	$17,400	$10,500

· Thirdly, you can manage your cash flow by increasing your assets and reducing your liabilities.

Having more assets is very important since it raises your net worth. You can purchase more assets such as properties and land. You can manage your debts such as reduce your appetite for loans and raise your allocations for liabilities settlement. This way you will be freeing up more cash which can be investments for future benefits. Your

Details	Current	Expected
Total Assets	$843,194	$1,034,639
Total Liabilities	$574,500	$464,500

Graph 1: A comparison of your current and expected assets and liabilities

I have reviewed your cash flow management for the next 12 months with a few changes in your lifestyle. Putting all aspects into consideration, the first option is the most effective cash flow management plan for you. After accounting all income and expenses adjustment, your annual surplus has been increased from $27,785 to $49,045. I have accounted for the under-utilization of your working assets. I have also accounted for the increase in insurance premium of $9,200 which is payable for the extra insurances. This does not mean that this entire additional insurance premium will be assumed as expenses. A significant amount of it forms an investment figure in your insurance policies that you will benefit from in future since it forms a component of your venture portfolio.

Table: Summary of Cash flow management Option

First option
Details	Current	Expected
Total income	$90,940	$108,075
Total Expenses	$53,455	$59,030
Surplus	$37,485	$49,045
Second Option
Stock and Bonds	–	$6,900
Trips and Luxury expenses	$17,400	$10,500
Surplus	-	$3,600
Third option
Total Assets	$843,194	$1,034,639
Total Liabilities	$574,500	$464,500
Net worth	$268,694	$560,139

Graph1: A graph showing Current and expected cash inflow and outflow and the surplus

2) Assets optimization

Your current worth which is the difference between your assets and liabilities is $268,694. The current asset portfolio generates back 39% which is good but is an underutilization of your assets given your moderate risk appetite. You have two houses that are unoccupied and which you barely use. If rented out, they can add $9,600 to your annual income.

Table: Current and expected asset allocation

Details	Current	Expected	Percentage increase
Total fixed Assets	$843,194	$1,034,639	23%
Working Assets	$547,103	$571,003	4%
Income from working assets	$35,240	$53,475	52%
Income from employment	$46,000	$46,000	0%
Cash value Insurance	$9,700	$14,100	45%
Bonds and stock	–	$6,900	100%
Total Liabilities	$574,500	$464,500	-19%
Net worth	$268,694	$570,139	112%

From the data you provided, I have realized that your rental houses have had an average occupancy rate of 65% which is an underutilization of the investment. I advise you invest some few money on advertisement to market it to the public. You can also consider lowering the rent from the current $200 per month to $180 per month to attract more customers. At a 90% occupancy rate, the rental flat can inject an additional $6,000 into your annual income.

I recommend you utilize the extra personal car that is wearing out in your garage into a taxi which can generate $2,815 per year. You have an extra personal car that is wearing out in your garage. A 2000cc Nissan Altima has a resale price of $4,200 in the current market, and the proceeds can be in a more beneficial investment like bonds or stocks which at a 5% return rate you can generate $210 annually. You can also convert it into a taxi which can generate $2,815 per year.

Table: Income from Working Assets

Details	Current	Expected
Commercial building occupancy rate	50%	85%
Income from offices	$18,840	$28260
Free houses	$0	$9,600
Rental Flats Occupancy Rate	65%	90%
Rental Flats income	$16,400	$22,400
Rental car	$0	$2,815

After restructuring your working assets, I have increased generated from working assets by $18,235 which is an increase of 52% from your current earnings. Your return rate will be increased by 5 % which is in line with your desired 4% annual growth rate.

Graph: Current and expected working assets income

2.1) Asset allocation profile

Your asset allocation profile portrays an aggressive approach which in your investment. 95% of your investment is on long-term investment which is an indication that you aim to maximize risk while minimizing risk. Such a profile has rocketing volatility rate and exposes you to a very high potential for growth, but the income is usually meager which is evident in your assets returns (Tibergien & Pomering, 2005).

Table: Asset Allocation

Assets	Value
Property	$510,500
Motor vehicles	$7,000
Life Insurance	$290,000
Cash and cash equivalents	$35,694

Chart: Asset allocation profile

You have allocated 61% to buildings, 34% to life insurance, 4% to cash and 1% to motor vehicles. Strategic asset allocation will maximize your assets returns. You can set fixed percentages of assets allocations to avoid having too much of long-term assets or too much of short-term assets which will also assist in balancing your risk on your investments. Your assets will grow. The chart below shows your expected future asset allocation as per your expected growth. This is a more distributed asset allocation compared to your current asset allocation. The property has 62%, cash and cash equivalents have 16%, cash value insurance has 14%, and motor vehicles have 8%.

Chart: Strategic asset allocation

3) Insurance planning

You have invested heavily in your retirement plan and under-insured yourself and your family. Personal and family medical insurance is very important for they reduce chances of spending much of your cash and cash equivalents settling hospital bills. Other time you might be forced to convert your assets into cash to pay medical bills which reduce your total assets and hence lowering your growth rate. I recommend you increase to purchase a personal and family medical policy. A good personal cover will cost you about 1,000 dollars annually and $2,500 for your family cover which will cover your wife and your two children.

Table: Insurance Policy Allocation

Policy	Amount
Life insurance	$300,000
Personal and family insurance	$1,250
Property insurance	$74,750
Motor insurance	$250

59% of your risk management allocation goes to life insurances, and 40% goes to ensuring your property. Your motor insurance is third party insurance which means in case of an accident; you don't get compensated.

Chart: Risk management allocation

Accidents are inevitable and unpredictable hence I recommend you purchase a comprehensive first party motor insurance that will cost you $600 annually for both cars. You also undervalued your property when purchasing your property insurance which means when a loss occurs today you will only get compensated for the value in the policy and not the actual value of the asset which will be less (Ramsey, 2013). I advise you to upgrade your property insurance to $10,000 to match your current value of asset since you undervalued your assets at the time of purchase of the policy.

Table: Summary of your current and expected risk management

Pension & Social Security Information (Annually)	Current	Expected
Life Insurance	$100,000	$106,000
Term Insurance	$190,000	$190,000
Pension	$10,000	$10,000
Medical Insurance	$500	$1,000
Family medical insurance	$750	$2,500
Property and Motor insurance	$75,000	$84,320
Social security amount	$65,000	$65,000

4) Retirement plan

4.1) Find the retirement lump sum

Your goal is to achieve an annual financial growth of 4% that translates to a monthly income after-tax of $5,905 until the last day of your life expectancy of 85 years which is equal to your current expenses. This translates to $70,860 annually which will be required perpetually. Putting inflation into consideration, we calculate the lump sum that you will require for your retirement. You will be retiring in the next 17 years, and the adjusted inflation rate will be 1.4%. The post-retirement fixed return rate is fixed at 2.5%.

4.2) Funding the entire lump sum

All your sources of income will fund the accumulation period for this desired lump sum.

Source	Method	The value in 17 years from now at 4% growth rate
Current assets	Cash flow revised (total income – total expenses)	$1,139,000
	Working assets contributions	$909,075
Insurance fund	Life policies, pension, and social security fund	$365,000
	Total	$2,413,075

The value of motor vehicles is not included in the revised assets because they depreciate with time and lose value and hence you will be making a loss. You are only able to raise $2,413,075 of the $6,441,818 creating a deficit $4,028,743. The options are

· Increasing your rate of return on your venture portfolio from 6% to 27% to cover the deficit. This will give $4,090,838 which is equal to the cash deficit from your retirement lump sum. However, leveraging your investment at such a rate can produce desired returns but it is very risky, and I would not recommend it.

· You can delay your retirement to 70 years which will add some income to your retirement fund, but it will not meet your entire lump sum fund.

· Scale down your retirement lump sum to $141,946 annually which will cover the entire $2,413,075.

I recommend scaling down your retirement lump sum.

CONCLUSION

All recommendations in this report are arrived from a comprehensive analysis of your current situation according to the data provided. While I have made every effort to provide you with the best plan to ensure successful financial success, commitment and discipline is key to the success of this plan. If you commit to the recommended plan with dedication, you are likely to achieve your future goals.

References

Brinson, G. P., Singer, B. D. & Beebower. G. L. (1991). Determinant of Portfolio Performance II: An Update. Financial Analyst Journal. Charlottesville, VA.

Kahn, M. Y. & Jain, P. K. (2005). Basic Financial management. Tata McGraw-Hill Education.

Ramsey, D. (2013). The Total Money Makeover: A Proven Plan for Financial Fitness. Classic Edition

Tibergien, M. C. & Pomering, R. (2005). Practice Made Perfect: The Discipline of Business Management For

CURRENT AND EXPECTED WORKING ASSET INCOME

Current Income from offices Rental Flats income Rental car Total 18840 16400 0 35240 Expected Income from offices Rental Flats income Rental car Total 28260 22400 2815 53475

Type of Income

Value in $

ASSETS ALLOCATION PROFILE

Value property Motor vehicles Cash value Insurance Cash and cash equivalents 510500 7000 290000 35694

STRATEGIC ASSET ALLOCATION

Value property Motor vehicles Cash value Insurance Cash and cash equivalents 647100 85400 141100 161139

RISK MANAGEMENT ALLOCATION

Amount Life insurance Personal and family insurance Property insurance Motor insurance 110000 1250 74750 250

YOUR ASSETS AND LIABILITIES

Total Assets Old Expected 843194 1034639 Total Liabilities Old Expected 574500 464500

EXPECTED INCOME CASH FLOW

Amount Expected surplus from first option Expected surplus from second option Expected surplus from third otpion 49045 59030 76470