Financial Planning Process Research Paper

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Financial Planning Process

At present there are not that many strengths for Jan and Bill. The best thing is that they have a car paid off, and they have a relatively low amount of consumer debt. They also work and have an income, which is better than some people. However, they have no savings, and they are not making enough payments on their credit card to take it down. They are probably knocking about $100 a month off the principle, which means they will take four years at least to pay it off, with sizeable interest payments along the way. But there are some strengths with which to work.

There are a few fundamental steps in the financial planning process that Jan and Bill need to take. The first step is to understand where they stand. This means creating a household balance sheet, and probably a budget as well. This will give them more information, with which to make better decisions. They will also need a goal, something that they can work towards. If they can also understand their risk tolerance, that might help but first they need to know where they are and where they want to be, and when (Investopedia, 2016).

Once they know this, then it is time to start examining how they can reach their goals. If they want to pay off the credit card, they have to determine how they can do that. They will also need to understand how much money they have each month, and where that goes, so that they can allocate it to their goals.Buy full Download Microsoft Word File paper
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Research Paper on The Financial Planning Process Assignment

For example, if they have a 25% tax rate, they might be taking home $3,750 per month. After the mortgage and car, this is $2,350. In theory, this should be enough for them, even if their tax rate is a little bit higher than that. They are spending a fair bit of money on everyday expenses, so the budget will help them trim some fat from their spending. But that points to a fairly obvious weakness -- right now there is no sense in what they are spending their money on. It appears that they have some money left over at the end of the month, but this is unclear. It is recommended that this couple starts work on a budget, itemizing all items, so that they know what they spending their money on. They will then be in a better position to make budget decisions, and allocate their resources towards their larger objectives in life.

2. The first goal is to pay off the credit card, as there is no reason to carry that debt and pay high credit card interest rates. This should be accomplished within the year. Further, they need to start building their savings. That should be goal number two, because there is more financial value in payoff the credit card at 19% (or whatever it is) versus investing at 5% ( or whatever it is). Still, there should be an objective for the savings, first a monthly objective for allocating in the budget and this will lead to an annual objective. If they save $500 per month, they will put aside $6,000 per year. In the second year, they should aim to save $1,000 per month so that they are saving $12,000 per year.

The current budget looks like this (not knowing what the discretionary expenses are):

Gross Income


Net Income

less Mortgage

less Car

less CC



It can be assumed that insurance, food and gas will amount to something between $1,000-1500. Health care is not mentioned, so assumed to be covered by the employer. The new budget with the above plans towards the two main goals will be:

Gross Income


Net Income

less Mortgage

less Car

less savings less CC


The question is whether Jan and Bill are going to be able to fit within $1,200, given that they have to pay for their gas, insurance and food, and ideally have enough left over. If this is too tight, then it is recommended that they delay savings until the credit card is paid off, then put that money towards savings.

3. The car decision is fairly easy -- they should not purchase a new car if they do not need one. That will increase their expenses by at least $400. It is recommended that at the very least they pay off their credit card before buying a new car. They should ideally delay a car purchase for a longer time, to help build up their savings.

The house decision is more complicated. The first question is what the value of their current house is, and how much higher is that value than their mortgage. If they are underwater, clearly they should not sell. If, however, they stand to earn a healthy profit, then they may wish to consider this. They can pay off their credit card, for example, with some of the profit. The other factor is what their motivations are, what price range they are looking at for a new house and any other factors. This decision requires listening to their personal situation. If they have a one bedroom but they want to start a family, that changes everything with respect to the house decision. If one or both have recently changed jobs and a new home would be a lateral move for convenience, they will need to weigh the value of that move. Financially, their position is somewhat precarious, so it is important that they take into account the financial ramifications of their decision to move. I cannot recommend either way -- just that they should delay such a move unless absolutely necessary, until they have a stronger financial position.

So one factor that has to be discussed with both decisions is the financial aspect. The financial aspect should be analyzed in terms of different scenarios as well. Jan and Bill have four options -- car, house, both, or none. They should look at the implications of each of these decisions so that everything is one the table. It could be that the house and care are mutually exclusive, for example, or that neither is truly affordable. They must also determine where these things fit within their priorities. They sound like wants, rather than needs. If that is the case, they should prioritize paying off the credit card and starting to build their savings.

Finally it is important for them to consider where these assets fit within their overall life vision. As noted the car seems superfluous, but there might be reasons why the house is not. As financial advisor, I would have to hear the case that they would make, and learn more about their circumstances before making a determination about a house. For all we know here, they could be driving sixty miles to work each day, and prefer to move five miles away from work in an area where houses are half the price of their current valuation. There are a lot variables at play with the house decision.

4. There are a couple of different ways to buy a car. One is to buy it outright. They have $4,000 in cash, but that will not get them a new car. There is the chance, however to get financing from either the dealership or from the bank. A car loan would work similar to the one that they have now, and probably in a similar amount. With a car loan, they will be able to pay a monthly payment for four years, and at the end of that have a lump sum to own the car outright. The advantage of this is that when the payments are finished, they can use the car without payment until it dies. They are currently benefitting financially from having one car paid off.

Another option is to lease. This option sees them pay a monthly rate to the dealership. This payment would go on in perpetuity, so is poor value compared with a loan. However, it has some benefits. First, it might come in at a lower rate because of the longer term. Second, people who lease cars typically will end the lease after a year or two, and roll that lease over to a newer model. For people who prefer to have a very new car all the time, this is one way of making that happen.

It is actually recommended to take the dealer financing, if they insist on getting a new car. The interest rates are low right now, and locking in a deal today will keep them low. Rates are set to rise throughout 2016, but dealerships may not have priced the expected interest rate rise yet. This is a good time to get a car loan. It is still rcommended that they do not buy a new car but rather plow that money into savings or paying off the credit card, but if they insist then getting a car… [END OF PREVIEW] . . . READ MORE

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How to Cite " Financial Planning Process" Research Paper in a Bibliography:

APA Style

Financial Planning Process.  (2016, April 23).  Retrieved September 26, 2020, from

MLA Format

" Financial Planning Process."  23 April 2016.  Web.  26 September 2020. <>.

Chicago Style

" Financial Planning Process."  April 23, 2016.  Accessed September 26, 2020.