PWM-Group 9-Session 5

Learning objective

Understand the preparation and evaluation of personal

financial statements (personal wealth statement and
cash flow statement)
Construction of personal budget and how to use it to
monitor and control spending

Material

Case study Developing the personal

statements and plans for the Guptas

financial

Note on Ratios for evaluating personal financial

progress
Samples of personal wealth statement, cash flow
statement uploaded on Claroline.

Suggested
discussion

Questions

for

Prepare summary of the financial goals (short

intermediate and long term) of the Guptas.
Present at least three of the goals in SMART format
Construct personal balance sheet and income and
expense account and common size statements of the
Guptas as on March 31, 2015.
Comment on the Guptas financial condition regarding
(a) solvency, (b) liquidity, (c) savings and (d) ability to
pay debts on time. If the Guptas continue to manage
their finances as described, what do you expect the
long-term consequences to be? Discuss.
Critically evaluate the Guptas approach to personal
financial planning.

Preparation Time

Varies by interest and ability level of students, but not

more than three hours of preparation and 30 minutes of
class time

Delivery

Written report and class presentation by Group 9

Evaluation Method

Evidence that thought was given to the topic and your

ability to engage students during class presentation

Case study:
Developing Personal Financial Statements and Plans for the Guptas
Sunil and Nishi Gupta are married couple. Sunil is an assistant manager with a KPO and Nishi works as a
fashion designer. Since their marriage three years ago, Sunil and Nishi have been living comfortably.
Their income has exceeded their expenses and they have accumulated a net worth of nearly Rs. 18 lakh.
This includes the Rs. 4 lakh that they have built up in savings and investments. Because their income has
always been more than enough for them to have the lifestyle they desire, the Guptas have done no formal
financial planning.
Nishi has just leaned that shes 3 months pregnant. Shes concerned about how theyll make ends meet if
she quits work after their child is born. Each time she and Sunil discuss the matter, Sunil tells her not to
worry because weve always managed to pay our bills on time. Nishi cant understand his attitude,
because her income will be completely eliminated. To convince Nishi theres no need for concern, Sunil
points that their expenses for the necessities last year were Rs.9.95 lakh, which just equaled his take-home
pay of Rs.10.59 lakh. With an anticipated promotion to a managerial position and an expected 15% pay
raise, his income next year should exceed this amount. Sunil also points out that they can reduce luxuries
(trips, recreation and entertainment) and can always draw down their savings or sell some of their shares
if they get in a bind. When Nishi asks about the long-term implications for their finances, Sunil says there
will be no problem because his boss has assured him that he has a bright future. Sunil also emphasizes
that Nishi can go back to work in a few years if necessary.
Despite Sunils somewhat convincing arguments, Nishi feels that they should carefully examine their
financial condition in order to do some serious planning. She gathered the following financial information
for the year ended March 31, 2015:
Name
Sunil Gupta
Nishi Gupta

Personal Profile
Age
Gross Salary (Rs)
30
14,40,000
27
10,50,000

Take-home Pay (Rs)

10,59,000
7,23,000

Financial Information (as compiled by Nishi Gupta)

Food and clothing expenses
Home loan payments, including house tax during the year
Travel & entertainment card balance outstanding
Utilities (gas, electricity, water expenses)
Household furnishings
Telephone bills paid
Car loan balance
Market value of Investment in equity shares
Credit card and personal loan balances
Car 2007 Model
Cash on hand
Medical expenses (non-reimbursed)
Home insurance premium paid

260,000
376,000
80,000
79,600
180,000
25,600
106,000
360,000
115,400
280,000
3,400
24,000
32,000

Savings account balance

Car Insurance premium paid
Transportation
Set up box charges
Estimated Value of Home
Trip to US and Canada
Recreation and entertainment
Car loan payments
Money market mutual fund balance
Purchase of equity shares during the year
Home loan outstanding
Addition to money market mutual fund during the year

19,400
16,000
112,000
19,200
3,920,000
200,000
160,000
86,000
100,000
300,000
34,77,600
20,000

Remarks:
Considering that information is incomplete the balance sheet may not tally.
You may also consider value of jewellery, personal use assets and balance outstanding in Guptas PF
accounts while calculating their net worth.