Personal finance
Question 1
Short term goal would be: having a fund for at least six months in case if you lost your job or if you face any circumstances in the short run.
Intermediate-term goals: develop good savings and investing habits and establish a financial plan, saving for buying a car, house, and children’s college education and for vacations.
Long-term goal: Saving for retirement by start contributing to an employer's 401(k) plan or an IRA or Roth IRA as soon as you begin working, and consistently put money in those retirement accounts and. protecting my assets by gradually shifting more of my assets into fixed income securities to achieve a better balance between growth and income.
How short-term goals help achieve long term goals? When you determine where you want your life to be in one year, five, or even 20, it will have an impact on what you do TODAY. Many long term goals will have short term goals that lead to them.
Question 2
Age 25-35: For this stage a good investment would be putting about 10 percent of your income toward retirement, and little by little increase the amount you save every time you get a raise. You should take advantage of an employer-sponsored 401(k), or start an Individual
Retirement Account (IRA). Even if you only put a small amount of money into these accounts, you’ll get in the habit of saving and may potentially benefit from compounded interest.
These are the highest earning years, when saving for your children’s college education becomes a higher priority, you may want to buy a bigger house, and you should ramp up retirement savings. At the same time, you’re likely earning more, and may benefit from bonuses or inheritance that can bolster the size of your investments.
Age 55-retirement:
I would move my investments to fixed-income securities to reduce the portfolio risk.
Question 3
Question 4
Balance sheet
As at 31st May, 2016
Personal income statement
For the month of May, 2016
Budget
Question 5
I never had deficits so it was not necessary to borrow or undertake other measures to deal with the deficit. I avoided a deficit by spending less (within my means).
Question 6: Financial ratios
Solvency ratio = Total net worthTotal assets
= 22,68024,000
= 0.945
Liquidity ratio = Liquid assetsTotal net worth
= 5,00022,680
= 0.2205
Savings ratio = Total savingsGross income
= 2902,800
= 0.1036 or 10.36%
Debt service ratio = Total debt paymentsTotal income
= 02,800
= 0
Question 7: Overall financial position
I think my overall financial position is stable. More than 94% of my total assets are financed by my net worth. My liquidity and savings ratio are high. The only liabilities I have are accrued expenses and not long-term debt. The liabilities are only about 4% of my total assets hence the risk of default is very low.
Question 8
Yes. FDIC is an important consideration for me, because it protects my money in the event of the failure of a specific financial institution.
Question 9
Bank of America is one of the world's leading financial institutions, it provides unmatched convenience in the United States, serving approximately 47 million consumer.
Rates
ATM Fees
Minimum required balance: $25
Yes it is convenient
Services:
Online banking
Mobile banking
Two other banks I may consider changing to
I may consider changing to American Express or Wells Fargo. However, I am comfortable with my current bank.
American Express
Benefits
No monthly fees and no minimum balance
0.90% APY
Provides links with current accounts hence there is no need for switching accounts
Question 10
I have two open credit accounts. I think I am properly managing all my open credit.
Question 11
I am happy with my credit score but I feel that it has to improve in future to meet my long-term plans. I have protection against credit card fraud. The Bank of America has placed some measures to improve credit card security. It provides fraud monitoring services to detect abnormal patterns. The chip card technology also enhances security.
Question 12
Based on the available salary statistics, I think I will be earning an annual salary of $55,000 when I finish my degree.
With an annual salary of $55,000, I can afford a house worth $300,000 (30% affordability ratio).
Rent-or-buy analysis
Buying the house will be more economical than renting the house. The above analysis has not included the appreciation of the house during the period. Since the house will appreciate, the net cost of buying the house will be more than the cost of renting.
Question 13
Future health care needs include dental, family healthcare needs, maternal, emergency health care services, among other needs. Currently, I do not have a healthcare insurance cover.
Question 14
Given my current financial position, I do not need a life insurance coverage.
Life insurance premiums often increase when health deteriorates or when one becomes old.
The priority now is to invest and life insurance coverage is not an investment.
I do not need it since my earning power is still low and I do not have dependants.
Many policies cover an individual for fixed periods with options to renew.
Question 15
The portfolio risk decreases as the age increases. A young investor is able to take a higher risk investment since he/she has time for the investment to offset any losses. In the early years of my career, I would invest more in stocks since they have higher returns though with high risks. When approaching retirement, I would hold more bonds since they have a lower risk.
Question 16
My projected retirement income need is about $2 million. I have used my current and expected incomes, monthly savings, expenses as well as other needs such as health care to determine the amount.
Question 17
Types of IRAS include the Traditional IRA, the Roth IRA, among other types. Roth IRA allows an individual to set aside income after tax up to a given amount. Any withdrawals made after 59.5 years are tax-free. Traditional IRA allows the deduction of pre-tax income. I would use the Roth IRA due to the tax advantages.
Question 18
In evaluating employer-sponsored retirement plans, I would consider factors such as flexibility in the use of funds, types of investments available, portability of funds, among other considerations.
Question 19
Estate plan is important since it helps in providing for the surviving family. It also helps in minimising expenses, providing for the beneficiaries, plan for incapacity, among other benefits. I can do an estate plan by preparing a will.
Question 20
A will includes an introductory clause with the full names and residence of the owner of the estate. It also includes a declaration clause stating that it is the last will. The bequest clause describes how the estate will be distributed and the details of the beneficiaries. It may also include the residual clause explaining how any remaining property will be distributed.
