Introduction
Financial plan is a sequential economic action which is supposed to be taken by an individual or business to achieve certain specific investment goals within a given future period. This is normally done in form of investment. In this case, Jossiah and Jemima Benson have money, time, strength, and opportunities but they are yet to decide on how to invest or apply this money. The application of this fund will depend on certain factors such as their age, lifestyle, investment attitude, to name a few. Furthermore, their investment would depend on whether they are risk takers (Peteraf 1993, p. 180). Let us, therefore, analyse them below.
Lifestyle plan
This is basically one’s way of life. Lifestyle of an individual is likely to affect his or her spending habit. A lifestyle characterised by a lot of luxuries and impulse expenditure is likely to be expensive resulting to low or no saving and consequently low or no investment. A well planned lifestyle is therefore significant or a factor to better investment.
Advice
If Jossiah and Jemima are planning to invest wisely without going through avoidable financial challenges, they must make sure their life is characterised by wise spending. In that way, they would avoid impulse spending and direct their money that would otherwise be spent on other things from investment.
Goal setting
Goal setting and budgeting could as well mean the same thing. In this case, an individual has an idea in mind that he or she wants to execute or achieve. Normally, goals are set to be achieved within a span of time. Achievable goals are also vital to success as they contribute to moral boost.
Advice
The couple (Jossiah and Jemima) need to stipulate clearly what their goals are and how they are going to be achieved, and whether they are achievable or not within the span of time. In this case, the timeline within which they intend to achieve these goals of buying a car, a house and the long term investment should be laid down clearly.
Investment plan
This is an arrangement of a portfolio intended to be executed by an individual (investor). A good investment portfolio is vital for success. An investment plan outlines what investment is to be executed by an investor.
Advice
As stated in their profile, they are willing to take a risk, which makes them risk takers. They first need to evaluate what investment opportunities are available for them. They need a portfolio that gives them good returns. If they choose to invest in shares then it must promise them very high returns because the investor’s attitude is already aggressive meaning that they are willing to take risks. If they intend to purchase an investment it should as well promise better returns.
Taxation plan
This is the arrangement of affairs by an investor or individual in order to pay less tax to authorities. Tax planning is legal but tax evasion is not. Good tax planning enables an investor to put his or her monies in investments or savings that are likely to give tax reliefs or allowances.
Advice
They should arrange their affairs in a manner that makes them pay minimal taxes without breaking the tax rules that is, without evasion. This can be realized by advising them to put their money in areas that would give them tax reliefs or allowances such as investing in government bills and bonds, taking a long term insurance plan, and contributing to a provident plan that is recognised by the tax authorities. By so doing, they would increase their savings and get more money to invest.
Retirement plan
This is planning for old age. Individuals plan for their life after retirements so as to secure themselves financially. This means joining a benefit scheme. The choice of this plan also has significance with regards to tax implication. A salaried individual needs to chose or join schemes that will enable him or her get tax allowances from authorities hence payment of minimal tax. This would lead to more savings and consequently better investment.
Advice
Jossiah and Jemima are both willing to retire early. This means that they have to secure their old age properly. By so doing, they need retirement schemes that will also help them save something in relation taxes such as superannuation Co-contribution Scheme. This would help them save something as regards to taxation, as well as secure their future (Wittner 2003, p. 11).
Insurance plan
Insurance range from life cover, educational plan, investment plans and insurance. Good insurance plans can be beneficial to an individual. In case uncertainty happens, an individual is compensated. This would also have tax implications. During tax computation, the premiums paid or are treated as expenses hence an individual would enjoy tax exemptions.
Advice
Any form of investment could be risky at certain points. Since this couple is aggressive in the fact that they do not fear risk, they just need to insure that if things go as then, they are safe, nonetheless.
Estate plan
Estate plan is a document that shows the anticipation and arrangement of sale or buying of an estate or property. A good estate plan is the one that gives flexible terms to a buyer. It should also show the expected income or benefits to the buyer. Income from real estate is not taxable whereas the asset enjoys capital deduction if it is meant for business or production.
Advice
As a matter of buying a house, they need a good estate plan, one which clearly stipulates all the benefits that are likely to accrue with the acquisition of that particular house to be purchased. This acquisition should help them reduce expenses thereby maximizing its value.
Recommendations
Short-term
Based on the above profile, Jossiah and Jemima Benson have managed to save $180,000 between them. The house they intend to purchase costs almost twice the amount they have at their disposal. The house costs $400,000. This means that the house can only be purchased with other financial plans such as Mortgage or just a bank loan. They can only purchase a house using a mortgage. As for the car, they really need it because a distance of 35,000Km translates to about 95Km per day, which means that there is an urgent need to purchase the car. The car can be purchased immediately using the already existing savings while the house can be financed using a mortgage and the balance of the savings after the purchase of the car (Porter 1990, p. 31).
Long-term
Jossiah earns $70,000 while Jemima earns $55,000, assuming that they consolidate this income, they have a monthly gross income of $125,000.This is taxed as below:
$28,000*15% = 4,200
$46,000*30% = 13,800
$51,000*40% = 20,400
38,400
This would be their annual tax assuming that they have not taken any measures to reduce their taxable income. Should they decide to employ tax planning then their taxable income reduces. For future investments, they need to engage in activities that will reduce their taxes such as investing in treasury bills and bonds, contribution to a recognized contribution scheme. Any form of investment should be properly evaluated to see whether it is worth investing. Since this couple is aggressive, they should choose a portfolio that promises high returns (Kanniainen & Keuschnigg 2005, p. 89).
Analysis Approach
Strengths
Some of the strengths consist in the fact that they are investment oriented and they are really looking forward to an easy future by planning it now. The fact that they have saved some money is an advantage point to them. Their aggressive attitude is also their strength. High risk investments always have the highest returns. If all goes well in the world of investment then they stand a better chance of success (Oster 1994, p. 78).
Weaknesses
Despite their aggressive character and the saving they have, they lack the adequate investment information to take them through to the next level.
Opportunities
With the money they have, they can invest in a share portfolio or margin lending. Due to their risk attitude, they stand a better chance to succeed should investment wave their way.
Threats
They have money but certainly it is not enough. This threatens their investment success as they cannot invest now. This, therefore, means that even if lucrative opportunities show up in the market, they may not participate due to lack of sufficient funds (Porter 1980, p. 71).
Strategic ramification
If the above factors are considered, the outcome would be a successful investment both in the short term and in the long run.
Advice Areas
New home
As far as this is concerned, the only sure way to purchase the house now is by the use of a mortgage since the amount of money they have is less than half the price of the house. A mortgage is also vital in tax planning in case it is obtained from a recognised institution.
New car – salary sacrifice
Salary sacrifice may not certainly be the best idea but since it is of urgent need, they do not have much choice than to purchase it. Alternatively, they can utilize part of the savings as they continue to save.
Investment property
To my mind, I have no doubt whatsoever that investment in real assets will give better returns in the future. Incomes from sale of real estate’s are not taxable and they could take advantage of this idea (Hollingsworth 2000, p. 594).
Investment portfolio – securities
In as much as this couple is aggressive, they ought to hedge against risk by at least including risk free assets such as government bills and bonds in their portfolio.
Financing/banking requirements
Since there is an evident need for additional funds, external financing may be required. In borrowing, they just need to borrow their shortfall so as to reduce or minimise their liability to the bank (Hall & Soskice 2001, p. 34).
Superannuation
This would help reduce their taxable income by the amount of their contribution as long as it does not exceed the allowed limit.
Possible Calculation Areas
Savings annuities
Present value of a perpetuity
PV (perpetuity) = Pmt
Rate
Assuming the discounting rate is 10% and that the tax computation above remains constant, the present value of their annual net income turns out;
Gross income = (70,000+55,000) = 125,000
Net income = 125,000-38,400
= 86,600
PV (perpetuity) = 86,600
10%
= 866,000
List of References
Hall, PA & Soskice, W 2001, Varieties of Capitalism: The Institutional Foundations of Comparative Advantage, Oxford University Press, Oxford.
Hollingsworth, RJ 2000, “Doing Institutional Analysis: Implications for the Study of Innovations”, Review of International Political Economy, Vol. 7, no. 1, pp 595–644.
Kanniainen, V & Keuschnigg, C 2005, Venture Capital, Entrepreneurship, and Public Policy, MIT Press, Cambridge.
Oster, SM 1994, Modern Competitive Analysis, Oxford University Press, Nueva
Peteraf, MA 1993, “The Cornerstone of Competitive Advantage: A Resource-Based View”, Strategic Management Journal, Issue.14, no.1, pp 179-191.
Porter, ME 1980, Competitive Strategy: Techniques for Analyzing Industries and Competitors, The Free Press, London.
Porter, ME 1990, The Competitive Advantage of Nations, London, MacMillan Press.
Wittner, P 2003, The European Generics Outlook: A Country-by-Country Analysis of Developing Market Opportunities and Revenue Defense Strategies, Datamonitor, London