Carol works as a business representative for an import/export company. Her job provides her with the opportunity to travel and experience new things. Because she travels so much, Carol feels that she does not have a handle on her finances. She has decided to pay a visit to a financial advisor for help.
Carol's Salary |
$2,000 |
Auto Payment |
$262 |
|||
Home |
$100,000 |
Mastercard |
$5,000 |
Int 15% |
||
Gas/Heating |
$100 |
Visa Card |
$3,000 |
Int 15% |
||
Electric |
$125 |
Bloomingdale Card |
$1,500 |
Int 29% |
||
Water |
$60 |
Personal Loan |
$5,000 |
Int 5%, 60 mths |
||
Internet/Cable |
$150 |
Mortgage |
$95,000 |
|||
Phone |
$50 |
Mortgage Payment |
$796 |
|||
Cell Phone |
$200 |
Car |
$20,000 |
|||
Food |
$250 |
Gym Membership |
$20 |
|||
Mortgage Payment |
$796 |
Personal Loan Payment |
$94 |
|||
Car Insurance |
$165 |
Carol's 401K |
$50,000 |
|||
Savings |
$500 |
Auto Loan |
$15,000 |
|||
Checking |
$1,000 |
Visa Payment |
$60 |
|||
Lawn Service |
$100 |
Bloomingdale Payment |
$30 |
|||
Mastercard |
$100 |
Write a 700- to 1,050-word paper that addresses the following items from the case study:
- Applyfinancial planning concepts to advise Carol and explain how Carol can benefit from financial planning. Describe the benefits of using financial statements in financial planning.
- Utilize andexplain strategies that Carol can use to increase her net worth. How does this affect her cash flow?
- Describethe sources available for asset management.
- Compilea list of legal protections that can be used to protect Carol’s assets.
- Using the information provided for Carol createa balance sheet and cash flow statement. Estimate Carol’s overall net worth.
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In the given case, Carol Jones is one of the business representatives who is working for an import/export company. She travels as a part of the business and as such does not get sufficient time to manage her finances and therefore she has decided to visit the financial advisor who has prepared the balance sheet and the cash flow statement based on here inputs and has also given her suggestion on how to manage the personal finances (Heminway, 2017).
Financial Planning is very necessary and critical in the era which is ever changing. Some of the benefits of using the financial planning are as follows
- It gives the financial security to the person and helps in forecasting for the future and arrange the necessary finances, if any.
- It helps to improve the risk management as there may be an immediate need of funds any time.
- Continuous tracking of the financials helps improving the portfolio’s return on investment and thereby earning good profits(Linden & Freeman, 2017).
- It helps in segregating the good and not so good areas for investment.
- It also aids in reducing the costs of the personal finances.
- It helps the individual in the asset management and improving the allocation of the money amongst the assets such that the productivity of the assets is improved.
- It helps in having the professional approach across financial management in having the plan and tracking it.
There are multiple benefits of having the financial statements in the financial planning such as they help in materialising the plans, they help in tracking the actual status vs budget. They also help in knowing what would be the income and expense for the given period and hence what would be the tax liability to be paid. It also shows the business trend and helps in getting the necessary credit when required. It is effective in terms of compliance and helps to know the overall status of the assets, the receivables, cash, loan and liabilities (Choy, 2018).
There are a few financial strategies which can be used by Carol to increase her Net worth. She can repay all the debt capital in the form of personal loan, auto loan, the master card dues, the VISA card dues and the Bloomingdale Card. This will help in reducing the debt liability and will improve the net worth of Carol. She is already using some of the ways to improve the net worth like investing in 401K which is a retirement fund, buying a house however, she also needs to find new sources of income and reduce the expenses, buy insurance and invest in stocks (Belton, 2017). This will also have an impact in raising the cash flow in the long term and thus having more liquid cash for future security and liquidity.
Asset management is very significant from long term personal finances perspective and it is necessary to allocate the same in the best possible manner so that the adequate and sufficient returns are reaped. Some of the sources available for asset management include investing in the stocks and the insurance as this helps in building capital over the period of time (Jefferson, 2017). Furthermore, she has invested in house and invest furthermore in the equities and bonds depending on the risk appetite. If she is apprehensive of fluctuating returns and wishes of fixed returns with less risk, she can invest in bonds whereas if she can take risk and expects higher returns, she can invest in equities and mutual funds. She should keep an eye on the bank statement and track her incomes and expenses and try to lower down her expenses.
Carol can legally protect her assets with the taking a home insurance, car insurance, and life insurance. This will help in protecting her assets in case something happens to this or it meets with fire or burglary. This will help Carol to be protected and insured in the event of loss and she will not fall in debt in such a case (Goldmann, 2016)
The Balance sheet and the cash flow statement of Carol has been shown below.
In the books of Carol |
||
Balance Sheet |
||
Particulars |
Amt ($) |
Amt ($) |
Assets |
||
Non-Current Assets |
||
Home |
100,000 |
|
Car |
20,000 |
|
Carol's 401K |
50,000 |
170,000 |
Current Assets |
||
Savings |
500 |
500 |
Total Assets |
170,500 |
|
Non-Current Liabilities |
||
Mortgage |
95,000 |
|
Auto Loan |
15,000 |
|
Personal Loan |
5,000 |
115,000 |
Current Liabilities |
||
MasterCard |
5,000 |
|
Visa Card |
3,000 |
|
Bloomingdale Card |
1,500 |
9,500 |
Total Liabilities |
124,500 |
|
Net Assets |
46,000 |
|
Equity |
46,000 |
|
Total Equity |
46,000 |
|
In the books of Carol |
||
Cash Flow Statement |
||
Particulars |
Amt ($) |
Amt ($) |
Cash Inflows |
||
Carol's Salary |
2,000 |
|
Total Cash Inflows |
2,000 |
|
Cash Outflows |
||
Gas/Heating |
100 |
|
Electric |
125 |
|
Water |
60 |
|
Internet/Cable |
150 |
|
Phone |
50 |
|
Cell Phone |
200 |
|
Food |
250 |
|
Mortgage Payment |
796 |
|
Car Insurance |
165 |
|
Checking |
1,000 |
|
Lawn Service |
100 |
|
Auto Payment |
262 |
|
Interest - MasterCard |
750 |
|
Interest - Visa card |
450 |
|
Interest - Bloomingdale card |
435 |
|
Interest - Personal Loan |
250 |
|
Gym Membership |
20 |
|
Personal Loan Payment |
94 |
|
Visa Payment |
60 |
|
Bloomingdale Payment |
30 |
|
MasterCard |
100 |
|
Total Cash Outflows |
5,447 |
|
Net cash inflow / (outflow) |
(3,447) |
|
The net worth of Carol is $46000 as can be seen above from the calculation of equity.
Conclusion
From the above discussion and analysis, we can see how important and critical the financial statements are better management of personal finances. We also saw that insurances are the best way to protect the assets and there are numerous way for assets management. The net worth of Carol was also calculated above.
References
Alexander, F. (2016). The Changing Face of Accountability. The Journal of Higher Education, 71(4), 411-431.
Belton, P. (2017). Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat International ltd. Retrieved from https://www.routledge.com/Competitive-Strategy-Creating-and-Sustaining-Superior-Performance/Belton/p/book/9781912128808
Choy, Y. K. (2018). Cost-benefit Analysis, Values, Wellbeing and Ethics: An Indigenous Worldview Analysis. Ecological Economics, 145. doi:https://doi.org/10.1016/j.ecolecon.2017.08.005
Goldmann, K. (2016). Financial Liquidity and Profitability Management in Practice of Polish Business. Financial Environment and Business Development, 4, 103-112. Retrieved from https://doi.org/10.1007/978-3-319-39919-5_9
Heminway, J. (2017). Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents. SSRN, 1-35.
Jefferson, M. (2017). Energy, Complexity and Wealth Maximization, R. Ayres. Springer, Switzerland . Technological Forecasting and Social Change, 353-354.
Linden, B., & Freeman, R. (2017). Profit and Other Values: Thick Evaluation in Decision Making. Business Ethics Quarterly, 27(3), 353-379. doi:https://doi.org/10.1017/beq.2017.1
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