Part -6 Personal Finance Planning
Students pursuing specialized degree courses in economics need professional finance planning assignment help. To assist them, cheapassignmenthelp.co.uk has introduced finance assignment help services for the students of Australia, UK and USA. If you need guidance in finance planning or personal finance management, you can refer to our PhD qualified experts for the best assistance. Personal finance or personal finance planning is one of the three main areas of finance (the other two being corporate and public). It refers to the management a person needs to do in order to obtain, budget, save and spend monetary resources over time keeping in mind various factors like financial risks and future life events.
Six major areas of personal financial planning
According to the Financial Planning Standards Board, there are six major areas of personal financial planning. They are:
- Cash flow management
Cash flow management is concerned with the financial position of a person. It takes into account the cash inflows and the cash outflows and determines whether the total outflow is equal to the inflow. In other words whether the income generated by a person is adequate to meet his monthly expenses is the main concern of cash flow management. Cash flow analysis also takes into account whether a person is spending more than what he is earning. Net worth of a person is calculated by adding all the assets of person and then subtracting all the liabilities from the assets at a given moment. We can also have a monthly balance sheet, following the same method. This cash flow management helps an individual to note the financial solvency and helps him to set financial goals. This is the basic domain which requires personal finance planning.Achieving positive cash flow is important. A positive cash flow occurs when the total amount of income from all the sources exceed the total amount of requires the flow of the outgoing cash is greater than the flow of the incoming cash. If you have negative cash balances you need to either cut costs or increase on your income level. Here is a typical cash flow statement example of how to do a personal finance planning:
Cash Flow Statement for the month ending December 31st 2013
Necessary : 12,500
You can refer to our finance planning assignment help for a detailed study in cash flow analysis.
- Risk Management
Risk management takes into account unforeseen acts in the future. Some of the major risk areas are death, disability, loss of property, health etc. A complete financial planning helps you to cover all the potential areas of personal risk. The specialized financial planners will provide an impeccable financial planning help to you. However there are several risk areas, where a separate insurance cover is required. In the U.S, only 20 percent of the homes which are at risk for floods are covered by insurance. Most of the insurance companies do not provide flood protection cover. Some insurance companies provide high value insurance cover for expensive homes. After hurricane Katrina, some regions made flood insurance for high risk areas, compulsory for getting bank mortgage. Personal insurance has become extremely importance in recent years. Many athletes, celebrities, business owners require separate insurance plan to adequately protect themselves. Our specialized finance assignment help can enrich you with a detailed analysis on risk management.
- Investment Planning
Another important area of personal finance planning is investment planning or financial planning. It refers to the planning for accumulation of adequate wealth to make large purchases. Major instances of asset accumulation include, purchase of car, house, luxury items etc. Life events like marriages, starting a family etc is also a part of personal finance planning which requires expert help.
Achieving these goals require adequate anticipation of how much these acquisitions would cost in future. A particular problem that arises with savings is that due to inflation the saving that a person is likely to have would no longer be good for the future. So suppose a person saves 10,000 dollars in anticipation of a future purchase, then at the time of that purchase the purchasing power of 10,000 dollars would no longer be the same. Or in other words, 10,000 dollars would not be able to buy the same amount of items that you can buy at present. As such mere savings would not be good. A person needs make some investments that would pay him high rates of return. Therefore a person needs to consult a financial planner who would use a combination of asset earmarking and savings to be invested in a variety of investing options. The investment portfolio or the collection of investments which a person holds needs to counter the effects of inflation.
In other words, the return on these investments should be such that they would be higher than the rate of inflation. A financial planner usually helps an individual to make up his investment portfolio. However, it should be remembered that investments are subjected to market risks. As such investments should always be done keeping in mind his present cash flow analysis, the financial goals of an individual, his risk tolerance and cash flow statement example. We have another interesting article on risk management in a corporate context for students requiring finance assignment help.
- Tax planning
Smart planning for taxes is required to make optimum utilization of the tax policies and the benefits of tax rebates and discounts which governments offer. Our financial planning assignment help experts discuss these tax planning and provisions in detail. Typically the income tax constitutes the single largest item on the list of taxes for working individuals. Tax management is therefore essential for individuals to get the maximum benefit from paying taxes. It is regarded as the most important aspect which requires personal finance management. Managing taxes is not a question of if you will pay taxes, but when and how much. Governments throughout the world give tax rebates and deductions for various reasons. Further, most governments follow a progressive tax structure. The cash flow analysis and the cash flow statement can give you a brief idea about the possible tax planning of the respective individual.
In United States, for instance, both the federal government and state governments tax working adults. The income which can be taxed after deduction is called a taxable income, while the total income which includes both taxable income and deductibles is called gross income. A person in U.S.A. is qualified for tax deductions if
- He has non-working dependants like wife or children
- If the dependant is not supported by any other individual
- If a couple files tax returns separately
- If the person is a widow or a widower.
Apart from these personal deductions, there are a couple of itemized deductions. They are:
- Medical expenses in excess of 10 percent of annual gross expense
- State, local and foreign taxes
- House mortgage interest
- Losses on non-business income due to casualty etc.
In order to compute tax, a person needs to find out the tax bracket within which the income falls. If the income falls in multiple tax brackets, then a person needs to finds out the various taxable incomes according to all the possible tax brackets and then add them to get total taxable income. So, a proper financial planning is required.
How to compute taxes: Calculating income tax is an essential part of finance assignments. Our finance planning assignment help and finance assignment help services include various examples to make you understand the concept. Suppose we have a person earning 300,000 dollars a year and we have the following tax brackets:
|Taxable income ($)||Tax bracket (%)|
|0 – 8500||10|
The 300,000 dollars would be taxed in different rates for different chunks of money the person is making. In the above tax structure $ 300,000 dollars will fall under all the five tax brackets.
So divide the money into different chunks of taxable incomes. For 300,000 dollar income, the various taxable chunks would be:
- $ 8500
- $ 26,000 (34,500-8500)
- $ 49,100 (83,600- 34,500)
- $ 90,800 (174,400- 83,600)
- $ 125,600 (300,00-174,400)
Now in order to calculate the various tax slabs within which your taxable income can fall just multiply the taxable income with the percentage of taxes of that income bracket.
8500 x .1 = $ 850
26,000 x .15 = $ 3900
49,100 x .25 = $ 12, 275
90,800 x .28 = $ 25,424
125,600 x .33 = $ 41,448
Total taxable income = $ 83,897
But this is the base rate. The taxable person will enjoy several deductions based on the tax laws of the country. So if the person has children or is paying interests on something or has governmental bonds and securities, deductions will take place. This will have to be calculated according to the appropriate tax laws. This is a basic example of how income tax can be calculated. If you need detailed explanations with additional examples, subscribe to our financial planning assignment help. From the most eminent experts, they will provide the best and unique finance planning assignment to you.
- Estate Planning
It involves planning for the disposition of a person’s asset when a he dies. Typically, there is a tax due to the state or federal government at the time of a person’s death. Estate planning therefore requires careful liquidation of property for the benefit of the family and relatives. Failing to do so, can sometime result the liquidation of the property by the government which may not include the family of that person. Our financial planning assignment help discusses estate planning intensely.
Significance of finance planning assignment help
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