Tim Hart

Financial Plan
FPLN 365
Spring 2017
This financial plan is put together for myself in anticipation of my graduation in December 2017.
I currently do not have many expenses, as I live with my parents. Because of these factors, many
numbers will be based on reasonable expectations after graduation.

Internal Data:

Client Timothy Hart

Age 21
Marital Status Single
Net worth ($29,498)
Income $50,000 (expected after graduating)
Expenses TBD
Investments None

Qualitative Data

Short-Term Goals
Purchase a vehicle with a $250 monthly payment, by June 2018.
Move out of Parents House by 2019.
Open a retirement savings account when beginning career.
Intermediate Goals
Pay off Student Loans within 5 years.
Long Term Goals
Purchase a House for $250,000 by 35.
Retire at age 65.
Risk Tolerance
Using Charles Schwabs investment questionnaire, I have a moderate risk tolerance. It
recommends my investments to be 60% Stocks, 35% bonds and 5% cash investments.

I also used Vanguards investing questionnaire, which recommended 70% Stocks, 30% bonds
and no cash investments. It did not provide risk tolerance in qualitative terms such as
conservative or high risk.

Other Information
I do not own a vehicle currently, but my parents allow me to drive their spare vehicle, I only
need to pay for gas, insurance, and repairs. It is a truck my dad still needs, so I am expected to
buy my own vehicle when I move out.
External Data

Inflation Rate: 2.5% (Payne, 1)

GDP Forecast: Low, 2.6% (GDP Annual Growth Rate, 1)

Stock Market Expectations: 6.88%, based on geometric average of past 10 years

(Damadoran, 1)

30 Year Mortgage Rate: 4.125% (Mortgage Rates, 1)

Corporate Bonds Interest Rates: 3.73-4.14% (Composite Corporate Bond Rates, 1)

10 Year Treasury Interest Rate: 2.43% (Daily Treasury Yield, 1)

30 Year Treasury Interest Rate: 3.04% (Daily Treasury Yield, 1)

Unemployment Rate 4.5% (Graph: Unemployment Rate, 1)

Balance Sheet
I currently do not own many assets. I do not own a vehicle in my name or any investments
currently, and I do not expect this to change before I graduate. My personal assets are based
on my own estimate. I calculated my current and long term loan balance by creating my own
loan schedule on Excel shown below. I also used this schedule in my forecasted cash flow
statement.

Student Loan Schedule

Principal Interest Monthly Total Total First Year

Interest Interest
$4999.87 2.88% $48 $5760 $760.13 $138
5997.88 2.88% 58 6960 962.12 166
7500 3.76% 75 9000 1500 630
6500 4.29% 67 8040 1540 268
5500 4.66% 57 6840 1340 247
5268 3.86% 53 6360 1092 196
232 3.86% 3 360 128 9
3500 3.00% 34 4056 556 101
$39497.75 $395 $47376 $7878.25 $1755

Current Payments due: 12 x 395 = $4740

These numbers are based upon the standard 10-year student loan repayment plan.

Balance Sheet
Timothy Hart
Forecasted for 1/1/2018

Current Assets: Current Liabilities

Checking Account $6000 Student Loan Balance $4740
Total Current Assets: $6000 Total Current Liabilities $4740

Investment Assets Long Term Liabilities

None 0 Student Loan Balance $34,750
Total Long Term Liabilities $34,750
Personal Assets
Personal Property $4000 Total Liabilities ($39498)
Total Personal Assets $4000

Total Assets $10,000 Total Net Worth ($29498)

Balance Sheet Pie Charts

Assets = 100%

Personal Use Assets

40% Cash and Cash Equivalents $6000
Cash or Cash Personal Use Assets $4000
Equivalents
60% Investment Assets $0
Total $10000

Liabilities = 100%

Current
Liabilities
10% Current Liabilities $4070
Long Term Liabilities $34748
Total $39498

Long Term Liabilities

90%
Cash Flow Statement
To create the forecasted cash flow statement, I forecasted many numbers using the ratios in
the text book.

Vehicle and Rent Costs

As stated before, I am going to need to purchase a vehicle after college, and I chose to set a
monthly limit of $250 over 3 years. This combined with my student loan payments, will be
$645 of liabilities every month. I then used this number with housing ratio 2 to help determine
what I should be paying in rent. If I use the max percentage of housing ratio 2, I should spend
no more than $1500 on rent and other debt. Subtract out the $645 on debt, and I can
reasonably afford $855 on rent a month. This is also well within the 28% of housing ratio 1.

Savings Ratio
The book recommends my own savings and employer match should be between 10-13% of
gross pay. I set my 401(k) contributions to be 10% of my gross pay, and assuming my future
employer matches, this percentage should rise.

Emergency Fund
I have estimated my monthly non-discretionary income to be about $2096. In my savings
account, I have $6000 in my savings account, which gives me an emergency fund ratio of 2.86.
It is on the low side, but I expect steady employment with my degree and I can build it up over
time.

Current Ratio
My current ratio right after college will be $10,000/$39498 = .39, which is very weak.

Federal Tax Calculations (Based on 2016 Tax Figures)

Income (estimated) $50,000
401(k) Contribution (expected) ($5,000)
Student Loan Interest ($1,755)
AGI $43,245
Standard Deduction ($6,300)
Personal Exemption ($4,050)
Taxable Income $32,895
Tax $4,468
Monthly Tax estimate $373

Other Numbers
Utilities, Auto Insurance, Gas, Food, and Miscellaneous expenses are all based on my own
estimates which I believe to be reasonable.
Net Discretionary Income
I left a large amount in the Net Discretionary Income to allow for contingencies in the forecast.
There will always be unforeseen expenses, and I will use some of it to pay back the principal on
my student loans

Forecasted Cash Flows

For Timothy Hart
Forecasted for the year 2018
Yearly Monthly
Income 50000 4167
Savings
401k -5000 -417
Contributions
Fixed Outflows
ND Rent -10260 -855
ND Cell Phone Bill -960 -80
ND Utilities -2400 -200
ND Auto Insurance -2000 -167
ND Student Loan -4740 -395
Payments
Car Payment -3000 -250
Variable
Outflow
Federal Taxes -4468 -372
State Taxes -2323 -194
FICA Taxes -3825 -318.75
Gasoline -960 -80
ND Food -2400 -200
ND Miscellaneous -2400 -200

Net 5264 438.25

Discretionary
Cash Flows
Income Statement Pie Chart

Income = $50,000

Savings
Net Discretionary 10%
Income
11%

Debt Payments
15% Taxes
21%

Insurace
4%

Other Living
Expenses
9%

Living Expenses
30%
Liquidity Ratios

Emergency Fund Ratio =6000/2096 2.86 (Poor)

Current Ratio =10000/39498 .39 (Very Poor)

Debt Ratios

Housing Ratio 1 =10260/50000 .21 (Good)

Housing Ratio 2 =18000/50000 .36 (Good)
Debt to Total Assets =39498+9000/10000 4.85 (Very Poor)
9000 comes from assumed car loan

Ratios for Financial Security Goals

Savings Rate =5000/50000 .1 (Good)
Investments Assets to Gross =5000/50000 .1(Bad)
Pay

Performance Ratios
I have left out performance ratios because I currently do own any investment assets, and have
no year zero to compare growth to.

Asset Allocation
My risk tolerance questionnaire results indicate that I should invest in aggressive mutual funds
in my 401(k) with a mix of 70% stocks and 30% bonds. The funds chosen should be held onto as
long as possible as I have a lot of time before retirement for them to grow.

Health and Life Insurance

I am eligible to stay on my parents health insurance plan until 26 which I plan to do so, and I
have no spouse or dependents so life insurance does not seem necessary yet.
Financial Plan Recommendations

Risk Management
I should plan to enroll in my future companys health insurance plan as I approach the age of
26. My needs will include health, dental, and eye insurance. I would also purchase a Life
Insurance policy if I get married by this time, and/or have children.

Budgeting
In five years time, I would like to have to have no car loan, and no school loans debt left. All
extra discretionary income I have in the meantime will be used to pay off my loans. When I
manage to pay off the debt, I will begin using the extra income to begin saving for a house.

Debt Management
I will be coming out of school with a large amount of debt, and must take on more debt to
purchase a vehicle. This area will be a key focus early in my career to retire the debt. Lowering
my Debt to Total Assets ratio will be a good indication of my progress.

Retirement
My plan is to continue putting 10% into my 401(k)-plan allocated into aggressive mutual funds
until reallocating to moderate options is more appropriate for my situation.

Investments
My extra income throughout the next few years will need to be used to pay off debt, and for
this reason I do not see the need to get any more investment assets besides a 401(k) until I am
in a better financial position.

Estate Plan
I would like to have a basic will drafted as soon as possible. I would like it to include money for
funeral arrangements, and all other assets given to my parents or sister if I were to pass. Once
again, when I get married and have children I will update the will to accommodate for them
more accordingly.
Future Cash Flow Statement and Analysis

I forecasted my future cash flows for 5 years after starting my career. I assumed 3% raises
every year and 3% inflation on many of the items.

Forecasted Cash Flows

For the Year 2023

Yearly
Income 57963.7
Savings
401k Contributions -5796
House -7000
Fixed Outflows
ND Rent -12000
ND Cell Phone Bill -1200
ND Utilities -2400
ND Auto Insurance -2000
Student Loan
ND
Payments 0
Car Payment 0
Medical Insurance
Premiums -3000
Variable
Outflow
Federal Taxes -6226
State Taxes -3935
FICA Taxes -4434.22
Gasoline -1113
ND Food -2400
ND Miscellaneous -2400

Net
Discretionary 4059.48
Cash Flows
Key Ratios Affected

Current Ratio =8000/0 No Liabilities

Debt to Total Assets =0/49,980 0, Very Good
Investment Assets to Gross =29470/57963 .51, Good
Pay
Savings Rate =12,796/57963 .22, Very Good

Using all extra income, I can afford to pay off my student loan debt within 5 years. I have also
budgeted paying off a car in 3 years after starting my career. Eliminating all my debts brings my
Current Ratio and Debt to Total Assets ratio down to nothing, which is a significant
improvement over the poor ratios I will have right out of school.

My Investment Assets to Gross Pay will also improve significantly as I contribute 10% of my
gross income into it. I assumed a 6% growth every year to come up with the figure I used in my
calculation.

My savings rate also increased significantly as I will begin saving for a house. If I commit to
saving $7000 a year from 27 to 35, I will have accumulated $56,000 for a down payment on a
$250,000 house.
 Works Cited

"Composite Corporate Bond Rate Table." Internal Revenue Service. N.p., 12 Apr. 2017. Web. 19

Apr. 2017.

"Daily Treasury Yield Curve." U.S. Department of the Treasury. U.S. Department of the Treasury,

n.d. Web. 17 Apr. 2017.

Damodaran, Aswath. "Annual Returns on Stock, T.Bonds and T.Bills: 1928 - Current." New York

University. New York University, 5 Jan. 2017. Web. 17 Apr. 2017.

"GDP Annual Growth Rate." Trading Economics. Trading Economics, n.d. Web. 17 Apr. 2017.

"Graph: Unemployment Rate (seasonally Adjusted)." U.S. Bureau of Labor Statistics. U.S. Bureau

of Labor Statistics, n.d. Web. 19 Apr. 2017.

"Mortgage Rates." Quicken Loans. Quicken Loans, n.d. Web. 17 Apr. 2017.

Payne, David. "Strong Dollar Will Keep Inflation Under Control." Www.kiplinger.com. Kiplinger,

16 Mar. 2017. Web. 17 Apr. 2017.