Principles Of Financial Planning Assignment Sample

• Type Assignment
• Downloads558
• Pages10
• Words2511

Introduction to Principles Of Financial Planning Assignment

Based on these financial concerns and objectives, I have provided the following plan to improve the current financial status and achieve the desired goals, similar to the structured guidance often found in Online Assignment Help in UK. This plan entails crucial areas such as proper budgeting, reduction of taxes, procurement and adequate personal and family wealth planning. Considering the information given, the current net worth, income, and expenditure will be assessed with the necessary measures. These steps shall enable the provision of education for the children, preparation for retirement, and other financial needs. These recommendations align with the UK tax system for the financial year 2024–2025 while using allowances and reliefs to advantage.

Needs and Objectives

• Effective Budgeting: Overcoming the annual account surplus with the aim at the optimal use of the funds being one of the critical components of financial development (Fachururaji and Fachururaji, 2022).
• Tax Efficiency: Minimizing tax engagements such as CGT plus income tax where needed and enhancing the qualification on other taxes.
• Saving and Investing for the Future: Accumulating enough money to cater to retirement and perceive structured and sustainable mechanisms to cater to children’s education.
• Protection Against Financial Risks: Managing the family’s finances for insurance needs to meet the necessities for life, critical illness, and income protection insurance (Yeh et al., 2021).

Assumptions

Financial Assumptions

Principles Of Financial Planning Assignment Sample

Liked This Sample? Hire Me Now

Chris Lee 10 Years | MSc

• Inflation Rate: Inflation is estimated at the price level to increase by 3% per year, thus affecting generalized costs and future expenditures.
• Investment Growth Rate: These are assumed to increase in the long run by 5% and the short-run savings by 2%.
• University Costs: It is assumed that the cost of University accommodation will increase by 2.5% annually.
• Inheritance Utilization: Rabena has £100,000 in its endowment, which will be used for long-term investments to fulfil a particular purpose.
• Pension Contributions: Pension contributions are kept at their present levels unless otherwise indicated (Hinrichs, 2021).
• Mortgage and Debt Management: Controlling for the assumption that there is no further borrowing during the planning period, the existing mortgage and loans will be paid as planned.

Non-Financial Assumptions

• Retirement Goals: Ben and Rabena are planning to retire at 60, and they expect to live the same quality of life.
• Life Expectancy: It is considered that Ben will live to 85 years old and Rabena will live up to 90 years old. Hence, all the financial ducts are made to cater to this long duration.
• Health Status: They are both expected to keep healthy with no large claims for illness and accidental expenses beyond the respective protection product (Rochmah et al., 2021).
• Lifestyle Stability: The factors include no significant changes in lifestyle or employment status over the planning period.

Current Position

Net Worth Statement

The current financial position is summarized in the following Net Worth statement:

Assets:

• Main residence: £475,000
• Ben’s classic car: £48,000
• Antique vase: £12,500
• Joint savings: £19,500
• Other assets: £6,500
• Ben’s pension fund: £210,000
• Total Assets: £771,500

Liabilities:

• Mortgage: £90,000
• Personal loan: £35,000
• Credit card debt: £9,700
• Total Liabilities: £134,700
• Net Worth: £636,800

(All calculations and detailed workings are included in Appendix 1.)

Income and Expenditure Statement

The current income and expenditure analysis is as follows:

Annual Income:

• Ben’s gross salary: £90,000
• Rabena’s business profits: £42,000
• Total Annual Income: £132,000

Annual Expenditure:

• Mortgage repayments: £12,000
• Household bills: £20,824
• Education and childcare costs: £15,000
• Leisure and discretionary spending: £10,000
• Loan and credit card repayments: £18,000
• Total Annual Expenditure: £75,824
• Annual Surplus: £56,176

(A detailed breakdown of income and expenditure.)

Personal Taxation Calculations

• The tax liabilities for the 2024-2025 tax year are as follows:
• Ben’s Tax Calculation:
• Gross salary: £90,000
• Pension contributions (10%): £9,000
• Taxable income: £81,000

Income tax and National Insurance:

Rabena’s Tax Calculation:

• Business profits: £42,000
• Taxable income: £42,000

Income tax and National Insurance:

The total tax liability for both individuals is optimized through pension contributions and Gift Aid. Detailed workings are included

Savings and Future Investments

Retirement Planning

To ensure financial stability in retirement, I have analyzed the existing provisions and projected requirements:

Ben’s Pension:

Ben currently accrues £25 per year to his defined benefit pension, which he will receive £18,562.50 a year upon retirement at the rate of 22/80 of his current £90,000 salary. Yet it is suitable for the base, but for the lifestyle needs more supplementation.

Rabena’s Pension:

Rabena, as of the moment, does not make any pension contributions at all. As a remedy for this, I suggest the opening of a personal pension with an annual deposit of £12,000. Based on growth rate of 5% per year, the workers would accumulate a pension fund of about £250,000 by the age of 60.

(Details of projections and calculations are provided in Appenxix 5)

Surplus Allocation:

On top of boosting retirement savings, up to £15,000 from the annual surplus can be made towards extra pension contributions for Ben and Rabena. This shall assist in granting a standard of living during retirement income.

Education Planning

On average the university accommodation expense for Omar and Zain is put at £ 9250 for each child yearly with a predicated yearly inflation of 2.5%. This comes to roughly £27,250 over three years per child or £55,500 for both children.

Recommendation:

As part of the investment, £10,000 per annum should be invested into a Stocks and Shares ISA. This offers tax-free growth, and given an average return of 5% for such investments, the target amount will be realized when needed.

Projections:

Analysis shows that at a growth rate of 5% per annum for 5 years, an annual saving of £10,000 will give approximately £55,25,6, which would be adequate to meet all the expenses incurred. Concerning the detailed calculations shown in Appendix 6, the following formula has been used.

Time Value of Money Analysis

To illustrate the potential growth of savings and investments:

Example: Regular investing of £1,000 per month and a diversified portfolio will produce an estimated £1,610,000 with a 5% return in 10 years.

Formula Used: Future Value (FV) = P × [( (1 + r)^n – 1) / r]

P = £ £1; 000 (monthly contribution)

r = 5/100 ÷ 12 (rate of return on a monthly basis)

n = 120 months (10 years)

These are presented in detail in Appendix 7 of this study.

Investment Recommendations

Ben: Investments for the future should be associated with moderate-to-high risk tolerance (Dong, 2024). Equity-based mutual funds and ETFs should be invested in.

Rabena: In the short term, there should be low risk and high savings, but in the longer term, there should be a middle-of-the-line risk for better returns. Limited default risk assets and diversified equity mutual funds are best for this purpose (Gonçalves, Pimentel and Gaio, 2021).

Both should make the most out of their ISA annual allowance (£20000 each), which will help to avoid taxation on investment growth. Furthermore, the money eventually to pass on to Rabena is one hundred and twenty thousand British pounds, which should be diversified but with a growth orientation.

Investment Recommendations

Risk Tolerance and Investment Strategy

Regarding risk preference, Ben prefers moderate to high-risk investment, which in this case is to invest in equity-based assets for growth (Gonçalves, Pimentel and Gaio, 2021). That is why Rabena has to have a balanced portfolio that contains a mixture of equities, and fixed-income securities accentedto the moderate risk of its activity.

Stocks and Shares ISAs

Investing in Stocks and Shares, ISAs are suggested as the first choice as an investment product, which gives tax-efficient growth and income (Vásquez, Escobar and Manotas, 2021). Through this strategy, annual ISA contributions of £20,000 each are optimized, making the most of one’s taxes while growing wealth. Ben’s perspective of the portfolio should comprise 70% equities, 20% bonds and 10% cash and anticipates a portfolio return of 5% per year. As per Rabena’s risk preference, her allocation should entail 50% in equities, 40% in bonds, and 10% in cash and strive for equivalent returns.

Inheritance Investment

The money Rabena got from her family is £100,000 and the money should be invested in varied investment instruments. Equity: £50,000 in equity-based mutual funds with an expected rate of return of 6p.a Investment in fixed income securities: £30,000 with a target rate of return of 3p.a Cash: £20,000 in cash with a targeted rate of return of 1p.a To a ten-year horizon, this allocation is expected to rise to about £151,953 as reflected

Pension Contributions

By raising the pension contribution to £12 000 per annum for Rabena, he will by the age of 60 have over £250 000 as a retirement fund. The extra amount of surplus would be better spent by raising Ben’s pension contributions to provide more towards retirement (Lalive, Arvind Magesan and Staubli, 2023). Budgets for the Rabena pension are presented in detail in the appendices as Appendix 5: Rabena’s Pension Projections.

Tax Efficiency and Capital Gains Tax

In order to reduce the Capital Gains Tax, Ben and Rabena’s CGT allowances of £6,000 per annum should be effectively utilised. Thus, Rabena can transfer the ownership of some assets, like the antique vase, to optimally distribute the gains and taxes (Symeonidis, Tinios and Chouzouris, 2021).

Expected Returns

• Stocks and Shares ISAs: annual compounded tax-free returns with 5% yearly growth.
• Inheritance portfolio: A mere weighted return of about 4.8% per annum, with an expected value of 10 years’ investment to be £ 151,953.
• Pensions: Five per cent compounded long-term with the added tax relief boost.

Action Plan

This shows an annual surplus of £56,176, which should be allocated rightly. This range includes the maximum allowable ISA contributions for both Ben and Rabena, raising Rabena’s pension contributions to £12,000 per annum and £10,000 per annum investment in savings for the children's education. The remaining should be invested in diversified growth-orientated securities.

Capital Gains Tax Calculations

Classic Car

• Sale Price: £48,000
• Purchase Price: £12,000
• Gain: £48,000 - £12,000 = £36,000
• As classic cars are classified as chattels and exempt from CGT, no CGT liability arises for this asset.

Antique Vase

• Sale Price: £12,500
• Purchase Price: £25
• Gain: £12,500 - £25 = £12,475

Application of CGT Allowances

The annual CGT allowance for the 2024–2025 tax year is £6,000 per individual. To minimize the CGT liability, ownership of the antique vase will be transferred to Rabena before

its sale, allowing both Ben and Rabena to use their full CGT allowances.

Combined Allowances: £6,000 (Ben) + £6,000 (Rabena) = £12,000

• Taxable Gain: £12,475 - £12,000 = £475
• CGT Liability on Antique Vase
• Rabena is a basic-rate taxpayer; thus, the taxable gain is subject to the CGT rate for collectables, which is 10% for basic-rate taxpayers.
• CGT Payable: £475 × 10% = £47.50

Protection Products

It should also provide financial security; this need will be met by acquiring appropriate protection products (Seddon et al., 2021). These recommendations relate to possible risks and include provisions relevant to present and future contingencies.

Life Insurance

For the worst-case scenario of a member of the family dying unexpectedly, I propose that the family should take a joint life insurance policy with £500,000 coverage. This amount will cater to the outstanding mortgage of £90000, the children’s education expenses, which will cost around £56900, and the family’s comfort money should be provided.

Estimated Monthly Premium: £100 (approximately thus, the figure was calculated from the comparison website for the term policy till age 60).

Critical Illness Cover

It finally pointed out that critical illness coverage is necessary to guard against income loss due to severe illness (Liu and Hu, 2022). I propose that everyone should have a policy that will cover each person up to £100,000 to be financially adequate for the recovery period.

Estimated Monthly Premium: £120 (combined).

Income Protection Insurance

It is suggested that; income protection insurance so that the family is financially secure in the lead of any potential loss of earnings from disease or injury. Ben’s and Rabena’s policies should ideally reach 75 percent of the incomes they expect to enjoy until they are 60 years.

Estimated Monthly Premium: £200 (combined).

Implementation Plan

These protection products should be protected so that coverage is available while simultaneously experimenting with the costs (Benami and Carter, 2021). Another option is to use the annual surplus to pay for the premiums and avoid interference with other objectives. Details of policy features and premiums from reliable insurers are provided in Appendix 5, with comparisons made.

Conclusion and Recommendations

All of the abovementioned objectives have been met by this financial plan of action, which will afford a sustainable economic path towards increased financial security and stability in the future (Li, Chen and Chang, 2023). The group’s average annual surplus of £56,176 will be efficiently managed to avail optimum investments, bolster pension, and secure protection products. Savings and investments contain the following characteristics in the light of the saving-investment relation, which is made in order with both short-term and long-term goals (Christian and Krämer, 2021). One thousand pounds should be saved for kids' education annually, while £ 20,000 each year should be put in the ISA. All the money Rabena received as an inheritance, £100,000, will be reinvested in diverse ways, yielding high returns in the long run.

Pension contribution ushers retirement planning to another level. With each annual donation of £12,000, Rabena can build something like £250,000 in firms by the time he turns 60. That extra money from the surplus will increase Ben’s pension and the well-being of both people after their retirement. Tax optimisation is essential, and there are measures to avoid unnecessary costs (Abdullahi Bala Ado et al., 2023). Maximising the retention of investment returns involves using up the CGT allowances annually, meaning that money resulting from asset sales is re-invested into ISAs and pensions.

This should be accompanied by wearing protective production, which is appropriate in case of any probable hazards (Abdullahi Bala Ado et al., 2023). The essential policies are joint life insurance, critical illness coverage, and income protection policies. The surplus shall meet these policies' costs, and any costs incurred here shall not affect other objectives.

References

• Abdullahi Bala Ado, Rashid, N., Mustapha, U.A. and Lateef, S.A. (2023). The Impact of Corporate Tax Planning on the Financial Performance of Listed Companies in Nigeria. International Journal of Economics, Management and Accounting, [online] pp.273–297. doi:https://doi.org/10.31436/ijema.v29i2.821.
• Benami, E. and Carter, M.R. (2021). Can digital technologies reshape rural microfinance? Implications for savings, credit, & insurance. Applied Economic Perspectives and Policy, 43(4). doi:https://doi.org/10.1002/aepp.13151.
• Christian, C. and Krämer, H.M. (2021). Saving and Investment in the Twenty-First Century. Springer eBooks. Springer Nature. doi:https://doi.org/10.1007/978-3-030-75031-2.
• Dong, C. (2024). The Impact of Different Financial Instruments on Investor Preferences. Highlights in business, economics and management, 24, pp.1557–1562. doi:https://doi.org/10.54097/ne5h9892.
• Fachururaji, M. and Fachururaji, H. (2022). Cek Dr. H Fachururaji, M.M 1. [online] Available at: https://digilib.iainptk.ac.id/xmlui/bitstream/handle/123456789/3082/Turnitin_Actualization.pdf.
• Gonçalves, T., Pimentel, D. and Gaio, C. (2021). Risk and Performance of European Green and Conventional Funds. Sustainability, [online] 13(8), p.4226. doi:https://doi.org/10.3390/su13084226.
• Hinrichs, K. (2021). Recent pension reforms in Europe: More challenges, new directions. An overview. Social Policy & Administration, 55(3). doi:https://doi.org/10.1111/spol.12712.
• Lalive, R., Arvind Magesan and Staubli, S. (2023). How Social Security Reform Affects Retirement and Pension Claiming. American Economic Journal: Economic Policy, 15(3), pp.115–150. doi:https://doi.org/10.1257/pol.20200686.
• Li, Z., Chen, S. and Chang, X. (2023). Achieving Clean Energy via Economic Stability to qualify Sustainable Development Goals in China. Economic Analysis and Policy. [online] doi:https://doi.org/10.1016/j.eap.2023.11.003.
• Liu, H. and Hu, T. (2022). Evaluating the long-term care insurance policy from medical expenses and health security equity perspective: evidence from China. Archives of Public Health, 80(1). doi:https://doi.org/10.1186/s13690-021-00761-7.
• Rochmah, T.N., Rahmawati, I.T., Dahlui, M., Budiarto, W. and Bilqis, N. (2021). Economic Burden of Stroke Disease: A Systematic Review. International Journal of Environmental Research and Public Health, 18(14), p.7552. doi:https://doi.org/10.3390/ijerph18147552.
• Seddon, N., Smith, A., Smith, P., Key, I., Chausson, A., Girardin, C., House, J., Srivastava, S. and Turner, B. (2021). Getting the Message Right on Nature‐based Solutions to Climate Change. Global Change Biology, [online] 27(8), pp.1518–1546. Available at: https://onlinelibrary.wiley.com/doi/full/10.1111/gcb.15513.
• Symeonidis, G., Tinios, P. and Chouzouris, M. (2021). Public Pensions and Implicit Debt: An Investigation for EU Member States Using Ageing Working Group 2021 Projections. Risks, 9(11), p.190. doi:https://doi.org/10.3390/risks9110190.
• Vásquez, J.A., Escobar, J.W. and Manotas, D.F. (2021). AHP–TOPSIS Methodology for Stock Portfolio Investments. Risks, 10(1), p.4. doi:https://doi.org/10.3390/risks10010004.
• Yeh, S.-C.J., Wang, W.C., Chou, H.-C. and Chen, S.-H.S. (2021). Private Long-Term Care Insurance Decision: The Role of Income, Risk Propensity, Personality, and Life Experience. Healthcare, 9(1), p.102. doi:https://doi.org/10.3390/healthcare9010102.