# Question for personal finance – Assignment 1

Question for personal finance course.Assignment 1Assignment 1 is due after Lesson 5 and is worth 10% of your final mark. The plan should beapproximately 8 to 10 pages in length, including a balance sheet and an income statement. Theexact length is less important than thorough, but succinct, coverage of the topic.In Assignment 1, you will integrate the concepts and calculations from the course with your ownfinancial planning.The assignment has two parts. Read through all of Assignment 1 before you begin. Review theAssignment 1 Tips at the end of the assignment instructions.Be sure to show all of your math or calculator keying sequences to support your calculations.This will help your marker provide valuable feedback to you for examination preparation.In Part A, you will construct a timeline outlining the goals you wish to accomplish between nowand the end of your life, the cost of those goals, and the savings needed to achieve them.In Part B, you will outline tax-planning strategies you will use to maximize your after-taxincome to better facilitate accomplishing the plan you outline in Part A. Part A: Financial Planning Timeline (3 steps)Step 1—Draw the TimelineDraw your own financial planning timeline. On the timeline, show the years between now andthe year of your estimated death. (Mortality tables and family history may help you estimate yourlifespan.) On the timeline, in the proper year, plot significant financial events and goals.Consider the major events that might occur in your life. At a minimum, include the four goalsoutlined in Step 2 below.A sample timeline (see the PDF on Assignment page) is provided as a reference. Note that thesample timeline does not show dollar amounts and that major events in the sample arehighlighted with superscripts.As with the sample, your timeline will not include dollar amounts. Use superscripts to indicatewhich events and goals are supported by notes and calculations (the financial planning detailsyou develop in Step 2).Step 2—Goals in DetailProvide details for each goal on your timeline. Refer to each goal by the number you used as asuperscript in your timeline. In your discussion describe each goal very briefly estimate its cost and explain how you arrived at the amount. Be sure to research andreference your sources; for example, for housing research, indicate the inflationapplicable to your area, or for education, estimate the inflation rates specific to postsecondary education. Provide a breakdown of such costs as travel expenses for a vacationgoal. state how you have dealt with inflation FNCE322v4 Assignment 1 Sept 4, 2013 outline any assumptions you made. You will have to consider the lifestyle expectations you have for your working life and yourretirement. You may find your parents, siblings, grandparents, and spouse helpful in thinkingthrough your goals and in quantifying them.Be sure to include the four goals listed below; additional goals will be the result of your uniquepreferences. We recognize that you may not have all the goals below in your personal life.However, all four goals should be included in this assignment, even if they are hypothetical. Theobjectives of this assignment are for you to learn the steps required in setting and planning foreach of these types of goals and to make the plan as applicable to your personal life as possible.The overriding benefit of this assignment is learning the processes and time value of money mathfor these types of goals. This should help substantially with examination preparation.1. Education What will a university education cost when your children are ready to attend? Be sure toconsider tuition as well as living costs. Check on current costs and think about how thesemight change, and reference all sources you use. Remember that tuition costs mightincrease at a greater rate than general consumer prices. How much will you have to savein order to have enough money when each child starts university to fund that child’sentire education? If your children are already past university age, set these goals forgrandchildren or other children you deem needy and worthy.2. Retirement Follow the process outlined in Figure 16.3 on page 470 of the textbook. You will havecompleted chapter 3 (Understanding the Time Value of Money) at this point in the course,and the math included in Figure 16.3 should be understandable. The figure will assist youwith the process (math steps) appropriate for this goal.At what age do you wish to retire? To what age can you reasonably expect to live? Howmuch retirement income will you need in order to support the lifestyle you desire?Assume you will have to pay your own way in retirement and you will not rely ongovernment-sponsored programs such as Old Age Security and Canada Pension Plan, oremployer pension plans; therefore, you would skip this step as shown in Figure 16.3.Remember that your retirement income requirements will be driven by your consumptionpatterns. Be sure to consider the costs of retirement activities such as travel. How muchwill you need at the time of retirement to fund your retirement years?3. Housing How will housing costs change over your life? Research the cost of housing and trends inthe area where you might like to live and retire. For example, you may want to live yourworking life in Regina and then retire in Kelowna. The housing prices are different inthese two places.Assume you will get a mortgage for 75% of the appraised value of the house. (If youwish, you may use 80%, the current percentage allowed by most financial institutions.)FNCE322v4 Assignment 1 Sept 4, 2013 The other 25% (you may use 20%) will come from the down payment that you will save.You will need to calculate mortgage payments. Be sure to show your math calculations(see chapter 3 for the three-step process) or your calculator keying sequence.4. Major Trip Plan a major trip with your spouse after your last child has finished university. Determinehow much the trip will cost. Be explicit about the destination, today’s cost, and the likelycost when you plan to take the trip. Credit all sources you use as references. Provide areasonably thorough breakdown of the trip costs rather than assessing an approximatesingle lump sum amount.Step 3—Calculate Savings RequiredCalculate how much you must save, per year, during your working career in order to achieveyour objectives. Assume that your ability to accomplish goals will come from your yearlysavings and not from any inheritances or investments.After you have determined the yearly savings required, estimate how much you must earn,before tax, to have this amount of savings available each year. Is the income requirementrealistic, given your goals? If not, your goals must be modified or changes made to your “incomeavailable for savings” line on your income statement such that the goals are attainable. Part B: Tax-Planning StrategiesList five major tax-planning strategies you will use to maximize your after-tax income andfacilitate achieving your goals, as outlined in Part A. Be sure to state why you have selectedthese five strategies as the most important. Each strategy should be distinctly different. Features,strengths, and weaknesses of each strategy should be outlined and made specific to yourindividual plan. Each strategy should be at least one quality paragraph in length. How Will Assignment 1 Be Evaluated?Part A is 75% of Assignment 1. Your mark for Part A will be based on the following: Is your timeline comprehensive? The four generic goals stated in Step 2 are the minimum—you will have other goals. How much research did you undertake to ascertain realistic costs? Be sure to providereferences for your research sources. Are your calculations accurate and complete? Be sure you deal in actual dollar amountsthat reflect the effects of inflation. Part B is 25% of Assignment 1. Your mark for Part B will be based on how well you explain thestrategies you choose and justify why they are important. Assignment 1 Tips FNCE322v4 Assignment 1 Sept 4, 2013 Part AIn Step 2, Goals in Detail, and Step 3, Calculate Savings Required, be sure you support thecalculations for all goals within the financial plan. Proper time value of money (TVM) math orfinancial calculator keying sequences must be shown.See Chapter 3 of the textbook and the corresponding lesson notes to ensure you have done theTVM calculations properly throughout the plan. It is essential that you understand and be able toperform proper TVM calculations; these skills are necessary for completing Assignment 1 andfor preparing for examinations.For the retirement plan (Step 2, Goals in Detail) you will find it helpful to follow the processoutlined in Figure 16.3 (p. 470 of the textbook). As you use this process for Assignment 1, ignorethe CPP and OAS information.In Step 3 – Calculate Savings Required, you are asked to identify the average savings rates for aCanadian earning $50,000, $100,000, etc. per year. These statistics are no longer readilyavailable.In lieu of determining the savings rates at various income levels, you should determine the totalannual savings amount needed (as calculated using time value of money math) to achieve allyour personal goals within the assignment. Then, compare your personal required savings rate(annual savings amount needed divided by after-tax income available for living expenses) withthe average Canadian’s savings rate in general. Discuss whether the personal required savingsrate is reasonable when compared to the average Canadian’s savings rate. If it is not, a reasonableexplanation should be provided as to how goals will be achieved; otherwise, the goals may needto be modified.You may find the following link to Statistics Canada helpful:http://www40.statcan.ca/l01/cst01/indi02a.htmPart BBe sure you devote sufficient time and energy to your tax-planning strategies. Remember, Part Bis worth 25% of Assignment 1. At a minimum, this part of your assignment should include clear,well-written paragraphs (one paragraph per strategy) outlining why the strategy would beadvantageous (and limitations of the strategy, if applicable) as well as comments on how thestrategy applies specifically to your plan. FNCE322v4 Assignment 1 Sept 4, 2013