🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
HomeClass Notes1,200,000CA670,000

Business Administration - Financial Planning RFC230 Lecture Notes - Lecture 2: Cash Flow Statement, Cash Flow, Situation Two

7 views3 pages
greenmuskrat329
19 Jan 2017
School
Seneca College
Department
Business Administration - Financial Planning
Course
Business Administration - Financial Planning RFC230
Professor
marysavona

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

1 lesson 2 part 1 budgeting and savings. Begin budgeting with a cash flow statement, which serves the following purposes: deter(cid:373)i(cid:374)e the (cid:272)lie(cid:374)t"s (cid:272)urre(cid:374)t fi(cid:374)a(cid:374)(cid:272)ial situation, clie(cid:374)t"s prope(cid:374)sity to spe(cid:374)d, sa(cid:448)e a(cid:374)d de(cid:271)t (cid:272)apa(cid:272)ity, track income and expenditures. Cf statement identifies: source of funds, source of expenditures, surplus available to meet savings goals. Cash flow statement: net income - expenses = cash flow surplus/deficit. Goal of financial planning is to generate a cash flow surplus: To pay down debt (reduce liabilities), or. Either of the t(cid:449)o uses of surplus (cid:272)ash flo(cid:449) (cid:449)ill i(cid:374)(cid:272)rease the (cid:272)lie(cid:374)t"s. Invest in assets that generate a return networth. As important as the current cash flow statement, is the projected cf statement which is creates based on goals that the client would like to achieve. Compensation: variable, past 5 years to see the trend. No cause variable, look at past years and index it.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Documents

Business Administration - Financial Planning RFC230 Lecture Notes - Lecture 1: Mutual Fund, Disability Insurance, Refinancing
greenmuskrat329
MCS 2100 Lecture Notes - Cash Flow Statement, Cash Flow, Current Liability
lemonsnake214
MCS 2100 Chapter Notes - Chapter 1-15: Real Estate Investment Trust
brownmule739

Related Questions

A cash-flow budget uses the same format as a cash-flowstatement. It is prepared on a monthly basis and it reflectsbudgeted income and expenses.

In addition to the cash-flow statement, Deon and May made a listof budget assumptions, listed for you here:

• Deon’s income will increase by 5%, effective January 1. Hisbonus is generally 10% of his income in the previous year, and hereceives it in January.
• May’s raise will be 3%, effective January 1.
• Interest and dividend income will conservatively be the same in2017 as it was in 2016 and will be received on a monthlybasis.
• Mortgage payments will be the same in 2017 as they were in2016.
• Federal income taxes are estimated at 20%, state income taxesat 6%, and social security taxes at 7.65% of wages, includingDeon’s bonus.
• Property insurance and property taxes are paid every sixmonths, in June and December. The amount is expected to be the samein 2017 as it was in 2016.
• May will contribute $60 per week for the employee portion oftheir medical insurance. According to her pay schedule, April andJune are five-week months.
• Auto insurance is paid at the end of each calendar quarter andshould not be more than it was in 2016.
• Deon and May would like to purchase a new car in the next fewyears and will put $500 a month away specifically for thatpurpose.
• Deon and May don’t expect the amount of variable expenses tochange in 2017 except that they would like to double theircharitable contributions and go on a vacation to Ireland in June.The vacation will cost $6,000.
• Gift purchases are made mostly around the holidays, so Deon andMay are planning to pay half of the gift expense in December andhalf in January when the credit card bill comes in.
• Water and sewer is billed quarterly, in January, April, July,and October. The cost of heat should be spread over six months fromNovember to April.
• All other variable expenses can be spread evenly every month at2016 amounts.

Use the information from their cash-flow statement (listed inthe first column of the following annual budget) and their budgetassumptions to fill in the missing amounts for the first six monthsof Deon and May’s monthly budget for 2017. Note: Be sure to fill inevery blank space with a value.

Annual Budget

Cash-Flow Statement

2017

Name: Deon and May Daley
2016 Jan. Feb. Mar. Apr. May Jun.
INCOME
Deon’s salary 59,000
May’s salary 53,100
Deon’s Bonus 5,000
Interest and dividends 150
Total Income $117,250
EXPENDITURES
Fixed Expenses
Mortgage 14,976
Deon’s federal income taxes 12,800
Deon’s state income taxes 3,840
Deon’s social security taxes 4,896
May’s federal income taxes 10,620
May’s state income taxes 3,186
May’s social security taxes 4,062
Property taxes 4,100
Property insurance 1,200
Medical insurance 2,400
Automobile insurance and registration 700
Savings for auto purchase
Total Fixed Expenses $62,780
Variable Expenses
Food 1,620
Entertainment 3,000
Dining out 4,700
Electric 350
Water and sewer 800
Heat 1,250
Cable TV 3,000
Telephone 600
Cell phone 900
Gifts 2,000
Personal care 600
Medical expenses 3,700
Vehicle gas and maintenance 2,530
Charitable contributions 1,500
Vacation
Total Variable Expenses $26,550
Total Expenses $89,330
SURPLUS (DEFICIT) $27,920

Deon and May have an emergency fund of $40,000. They would liketo start saving for retirement, but they have not signed up fortheir companies’ 401(k) plans. Neither company matches 401(k)contributions.

What do you suggest for Deon and May based on their goals andthe budget that they have put together?

The $40,000 that the Daleys have saved for an emergency is___three months of expenses. They have not, however, takenadvantage of the employer 401(k) plans that are available to them.If an employer does not match contributions, it is ____advantageousto contribute to a company-sponsored retirement savings planbecause the contributions to the plan are invested with___earnings. If the Daleys invest part of their surplus in their401(k) plans, they will save the designated amount plus another___of that amount because of the tax savings.

Find an article dealing with budgeting and prepare a 1 page summary of how you can apply the information to your personal finances.

ARTICLE:

Budgeting is the foundation of personal finance. Whether or not you write a personal budget, use a budget spreadsheet, use a budgeting app, or simply keep track in your head — you’re probably already budgeting.

And budgeting is never more important than in your early adult life as you figure out how to stretch a paycheck, pay off debt, and — hopefully — save a little bit, too.

This page will give you the basic tools you’ll need to start budgeting.

What is a Budget, Exactly?

A monthly budget is a plan for how you will allocate income to meet your expenses for a designated month. Some think of budgets as spending constraints, but budgets are better described as “spending plans”. If you budget correctly you will be able to spend money on things you enjoy without worrying about meeting other financial obligations, overdrawing your accounts, or going into credit card debt.

A monthly budget typically consists of a list describing your income sources and expenses. Each description is followed by the amount you project for the amount of the income or expense for the designated month. A monthly budget can be an Excel spreadsheet, managed within a software program like Quicken, or simply jotted on a piece of notebook paper.

Writing Your Budget

A monthly budget is an estimate, but your goal should be to make as educated an estimate as possible. To do this, you will want to collect a month’s worth of pay stubs, bills, and bank statements, if possible.

INCOME

Assuming you are budgeting for an upcoming calendar month, start by looking at your previous month’s take-home pay.

If you are paid monthly or semi-monthly, this will be easy.

If you are paid every other week, multiply your paycheck by 2.166 to determine your monthly pay.

Paid weekly? Multiply your check amounts by 4.333.

Budgeting is a bit trickier if your main source of monthly income varies (if you work variable hours or earn tips), you can average several months of income or estimate based upon experience. But be conservative. In a month’s time you want to have spent less than you planned for in your budget—a difficult goal when you don’t bank as much cash as you thought.

You also want to take other income sources into account.

Do you work more than one job?

Will you get a bonus next month?

Do you pick up odd gigs or sell old stuff from time to time?

Do you have any investments paying dividends?

Create entries in your monthly budget for these additional income sources and create a line for your total monthly income. This is the amount you have to spend for the month and the basis for your “spending plan”. You cannot spend more than this in any one month. If you anticipate unusually large expenses next month for which you have money saved (a vacation, for example), consider including the savings you will use to pay for the expense as income. This will allow you to see a more typical monthly spending plan despite the inclusion of a non-monthly expense.

EXPENSES

For your monthly budget to work, your expense projections need to be as accurate as possible. Some expenses, like your rent, car payment, and insurance bill, are simple. From there, it gets trickier.

Chances are your utility bills fluctuate from month to month and how much you spend on groceries, dining out, and clothing may vary drastically. Here’s where having a few bills and bank statements will be useful so you can average several month’s worth of data.

Place each expense on a line and write down the amount next to it. You may find it useful to create categories of expenses like:

“Transportation”

“Household”

“Food”

“Entertainment”

“Debt”

Consider expenses that may not be monthly, such as clothing or car maintenance. You should still budget for these items. If you allocate money every month for these things, that money will be available when you do need it.

Tracking and estimating your monthly expenses will be harder, but not impossible, if you frequently pay in cash. While cash is a good way to moderate your spending, you need to be diligent about collecting receipts if you want to know where your money went. A new benefit of credit and debit cards now that you can use them virtually everywhere, even for micro payments of just a few dollars, is at the end of the month you get a statement with all of your monthly expenses on one page. If you’re struggling with credit card debt, definitely stick with debit cards or cash. But if you can learn to use a credit card responsibly and pay it off in full each month, I actually think a good credit card can make budgeting easier.

Your Bottom Line

When you have a complete list of your monthly expenses, add them up and subtract the sum from your monthly income. You should have a positive number. No? Uh-oh. If you have been spending according to this budget, you are going into debt. You will need to find out why your expenses exceed your income and find ways to cut your expenses – fast! Look at your list of expenses and separate discretionary spending. This includes entertainment, travel, gifts, and all dining (including lunches!) Most people can cut their monthly expenses significantly by learning to give up small daily expenditures like coffee or snacks.

If your budgeted expenses fall below your income, congratulations! You are successfully living below your means. The question, now, is how to use your extra money. Follow our six steps to financial stability to help you prioritize your money goals.

Finally, Keep It Simple

If you ever want to build wealth and stay out of debt, you have to spend less than you earn. And a budget can ensure that you do that. Still, rigidly tracking every dime you spend is like counting calories — it sounds good in theory, but most of us fail to keep up with it.

But you can stick with a budget if:

You keep your budget as simple as possible.

You harness the power of automating your money.

After you get a handle on your budget, you’ll be able to focus on other priorities like getting out of debt, building emergency savings, and begin to save for retirement. They aren’t the most exciting financial goals of your lifetime, but once they are out of the way they provide solid footing for financial security for the rest of your life.

Read more at: https://www.moneyunder30.com/budgeting-in-your-twenties

Anna DeCile, 49, is feeling the financial fallout from a divorce. Her lifestyle has dramatically changed with the loss of her husband's income and she fears retirement looming on the horizon. She plans to work until age 70 in order to play catch-up. Then she wants to move south to a cheaper location in Virginia or the Carolinas to retire.

DeCile earns $29, 573 ($2, 479 monthly) and noted that she has two adult children. She also noted that a long-term goal was "someone to care for me when I am unable to care for myself," but the specifics were unclear. Other financial goals in the short and intermediate term are a $1,800 cruise, $2,000 of home improvements, pre-paid funeral expenses, and "money to live on $3,500 per month."

Another concern is health insurance. After her divorce, DeCile felt that she could not afford to pay her ex-husband's employer over $5,000 annually for coverage. She lives in fear of a major illness or disease (e.g., cancer) because her current employer does not provide health benefits.

DeCile has been gradually spending money received from her divorce settlement to make ends meet. The simple fact is that she can't afford her lifestyle and her savings is running out. She estimates that there is at least a $500 per month gap between what she earns and what she spends. No specific monthly expense figures were provided, but she listed car insurance as a major concern.

Asset and debt figures were listed, however. DeCile's net worth is $121, 293. Her major asset is her $145,000 home. She also has $206 in checking, $1,960 in savings, $5,786 in two bank CDs, a $2,625 money market fund, $4,602 in mutual funds, $3,514 in stocks, and $20,000 of personal property.

On the debt side, DeCile owes $56, 032 on her home, a $28,759 mortgage and a $27, 273 home equity loan. Other debts are a $4,611 personal loan and $1,760 owed to a friend. DeCile is concerned that her debt load has been rising. Her house needed a number of repairs, which resulted in the home equity loan.

DeCile has no will to indicate her estate planning wishes. "I don't have enough to worry about, she notes. She has a $20,000 whole life policy that could pay funeral costs and $300,000 of liability coverage on her car. She has no earmarked retirement savings such as a 401(k) or IRA.

1.Discuss the strengths and weaknesses of DeCile's financial situation.

2.Discuss the strengths and weaknesses of DeCile's financial situation.

3.Comments about DeCile's cash flow.

4.Calculate the savings required to reach DeCile's financial goals.

5.Recommend 3 to 5 action steps to improve DeCile's financial

6. Recommended financial products such as bank accounts, insurance policies, and mutual funds for DeCile.

7.List the available resources that can assist DeCile'sto improve her finances.