Personal financial planning has become very important in the modern days. Financial planning is no longer a reserve of corporate sectors but play a significant role in individual planning. Individuals have to plan their finances in order to achieve their objectives. Personal financial planning is aimed at helping individual achieve their economic and other goals by managing their money. Financial planning is essential for ensuring financial security not only during working years but also after retirement (Kapoor, Dlabay and Hughes, 17). Financial planning is essential for Joe and Jane Smith. Smiths are young and with proper financial planning can be able to achieve their objectives with less difficulty.
Joe and Jane Smith have total net earnings of $57480. This is an average earning but when well managed can help the Smiths to achieve their objectives. Both Joe and Jane Smith are 28 years old. Their family is young as their son, John Smith, is only two years old. Thus, the Smiths can manage their finances to support their career development, development of their son and plan for their retirement.
Joe Smith spends $2832 on repayment of his student loan in a year. He also spends $5856 on car load repayment and $864 on Visa. This expenses amounts to $9552. Jane Smith on the other hand spends $2400 on student loan repayment and $2832 on car loans. In addition individual expenses, the Smiths have to spend yearly $16284 on mortgage repayment, $3000 as tax for their mortgage house and $600 as insurance premiums for their house. In Addition, the two spend $7800 per years as day care charges for their son. In summary, the smiths have total earnings of $57480 per year and direct expenses of $42464 per years. The difference of this is $15016 per year with which the family has to use on other expenses such as fuel, food, clothing, entertainment and other expenses.
The house mortgage is a good financial decision. By taking the mortgage, the Smiths will be able to own a home in a convenient way. In 30 years, the Smiths will have completed payment for the mortgage and they will be able to own the house. Joe Smith’s participation in 401(k) plan is very important for retirement. 401(k) will help Smith to save some of his earnings for retirement. At the age of 60 Smith will be able to access his contributions which will be very helpful at his retirement.
The Smiths generally have high expenses. The cars loans, student loans, visa and mortgage take up most of their earning. Apart from retirement programmes, the smiths do not have another plan for saving. To have financial health, the Smiths should strive to reduce unnecessary spending. For instance, Jane Smith should not commit herself to another car loan just after completing repayment for her current loan. The Smiths should first complete repayments of some of their current loans before engaging to other loans. It is advisable for Jane Smith to participate in the optional 403(b) plan. This will be very important for her retirement. The Smiths also need to invest in life insurance. Currently they do not have a cover, which is a risk if any of them gets a misfortune. In addition, the smiths should start an education plan for their son. An educational cover would be appropriate as it will make it easy for their son to pursue education in the future.
Kapoor, Jack., Dlabay, Les., and Hughes, Robert. Personal finance. New York: McGraw-Hill, 2004.