Due April 19 at midnight.Financial Plan Project The objective of this exercise is to get you...

Question

Due April 19 at midnight.Financial Plan Project  The objective of this exercise is to get you thinking about the financial plan for your own life.   Develop a multiyear spreadsheet covering your working years and retirement years, allowing you to  analyze different scenarios for life expenses, rates of return and asset allocations, retirement needs,  types of accounts, inflation rates, etc.  Chapter 4 and 20 have some background info, but please do it  from scratch on your own. Keep it simple; too much detail only obfuscates the plan. Make reasonable  assumptions about your rates of return. To develop a good plan, you should:  A)   Project your income and broad categories of expenses annually throughout your working years:  rent/home payment, cars/insurance, children, food, recreation/other discretionary. The objective will be  eventually to integrate this spreadsheet with those in B) and C).  Please do not spend most of your time  on this part. This is just a starting point. B)  Research online asset allocation tools and recommendations for individuals like you. Research  specific mutual funds you will invest in, banks/ brokerage firms where you will have your savings. Think  of risk and return, taxable and tax-sheltered allocations, and how your allocations will change over time. C)   Project your retirement needs. Think what it would take in today’s dollars to live well in retirement  including housing/medical, estate and pensions. Assume an inflation rate and project into future dollars. Combine A), B) and C) into one comprehensive spreadsheet that will allow you to run scenarios by  varying the key drivers of your plan. These could be rates of return, savings rates, inflation, life events.   Spend time analyzing the scenarios. Prepare a 9-10 page financial plan report. Page 1 is an executive summary, then a 3-4 page description  of the plan, followed by the printouts of the most important tables and graphs (not to exceed 5 pages).   Be prepared to present to your classmates.  Your 3-4-page write-up (1.5-spaced) should include:    the basic description of your/your family situation, list of assumptions about your life changes  (husband, kids, houses, job changes), expense growth, income and career progression   short description of your model drivers (inflation, expense growth, return on investments,  retirement withdrawal rate, tax management)   summary of your results (what you need to save, how you need to allocate investment- and tax- wise, what income will you have in retirement), risk factors, and discussion of sensitivity analysis  (what if I save less? What if I don’t earn that? etc. )  You will be graded on:   Completeness of the analysis: scope to include working years and retirement years   Basic reasonableness of the results (do not end up with millions on a $20,000 income)   Depth of supporting calculations/graphs

Nitish Lath · Accepted Answer

Executive summary
The report has been prepared with an objective of providing detailed budget analysis for an individual. The budget covers mainly two cycle i.e. one earnings phase and second retirement phase. Further, the report also analyse the assets allocation ratio over life cycle and detailed assumptions have also been discussed in the report. The report has been prepared based on inflation rate and tax has been considered as an integral part of household expenses.
Basic description about situation and list of assumptions
In the case, Mr. X is doing job in a MNC as a professional accountant and has just started his job. There are total 4 family members in the family out of which Mr X is self, his spouse and 2 children. The major source of revenue for the family are salary from MNC and interest and dividend income from investment. The major list of assumptions are as below:
· The year 1 to year 10 have been considered as earning years and year 11 to year 20 as retirement years.
· The annual inflation rate has been considered @7.87% for next 20 years based on current inflation rate in USA.
· The increase in expenses have been considered at current inflation rate throughout 20 years.
· The increase in salary expenses have been considered @10% annually and there will be no earnings post 10 years except dividend and interest income.
· The dividend and interest income increase has been considered at current inflation rate.
Short description of model drivers and budget chart
The short description about budget model and drivers are as below
· The total inflows during year 1 are $65,700 which is expected to reach $152,748 per year in year 10.
· Mr. X has taken house on rent in upto year 5 on yearly rental of $5000 which will be increased by 7.87% YOY basis. Further, the home loan repayment will start from year 6 onwards and he will start withdrawn the money from assets from Y11 onwards.
Income and expenses during earning years
	Particulars
	Earning years
	
	Y1
	Y2
	Y3
	Y4
	Y5
	Y6
	Y7
	Y8
	Y9
	Y10
	Inflows
	
	
	
	
	
	
	
	
	
	
	Salary income 
	 60,000 
	 66,000 
	     72,600 
	     79,860 
	     87,846 
	     96,631 
	 1,06,294 
	 1,16,923 
	 1,28,615 
	 1,41,477 
	Interest income
	2200
	    2,373 
	       2,560 
	       2,761 
	       2,979 
	       3,213 
	       3,466 
	       3,739 
	       4,033 
	       4,350 
	Dividend income
	3500
	    3,775 
	       4,073 
	       4,393 
	       4,739 
	       5,112 
	       5,514 
	       5,948 
	       6,416 
	       6,921 
	Total inflows
	 65,700 
	 72,149 
	     79,232 
	     87,014 
	     95,564 
	 1,04,955 
	 1,15,274 
	 1,26,610 
	 1,39,064 
	 1,52,748 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	Outflows
	 
	 
	 
	 
	 
	 
	 
	 
	 
	 
	Rent payment
	    5,000 
	    5,394 
	       5,818 
	       6,276 
	       6,770 
	 
	 
	 
	 
	 
	Home loan payment
	 
	 
	 
	 
	 
	4500
	4500
	4500
	4500
	4500
	Car Loan payment
	2000
	2000
	2000
	2000
	2000
	2000
	2000
	2000
	2000
	2000
	CC 1
	3200
	    3,452 
	       3,723 
	       4,017 
	       4,333 
	       4,674 
	       5,041 
	       5,438 
	       5,866 
	       6,328 
	CC 2
	6400
	    6,904 
	       7,447 
	       8,033 
	       8,665 
	       9,347 
	     10,083 
	     10,876 
	     11,732 
	     12,656 
	Insurance 
	1200
	    1,294 
	       1,396 
	       1,506 
	       1,625 
	       1,753 
	       1,

Financial Plan Project The objective of this exercise is to get you thinking about the financial plan for your own life. Develop a multiyear spreadsheet covering your working years and retirement...

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