Personal Budget Balance Sheet, Cash Flow Essay

Memo To:Mr. Christopher De Maline From: Date:02/17/2014 Re:Personal Budget, Balance Sheet, and Cash Flow Statement Dear Mr. De Maline Saving money is extremely important however; some people do not have healthy savings thus leading them to financial instability. Therefore, being a good steward over your finances should be consistent and begin at an early age and progress as you age. This will provide an effective growth pattern to allow future financial security. The purpose of this memorandum is to evaluate my client’s financial outlook, their personal budget, balance sheet, and cash flow statement and provide recommendations for improvement of their financial situation. My client, Chauncey Latham is 51 years old and a police officer. He is married and has one dependent. Kyle Latham, Chauncey’s wife is 47 years old and is currently not working. Prior to her unemployment, Kyle annual earnings were $96,000 a year. They live is a nice 4-bedroom house, in a great community with a sought after school district. The family has a comfortable looking life, though their financial outlook is pretty grim. Together Chauncey and Kyle earn $85,000 a year, which includes Chauncey’s off duty work and Kyle’s unemployment benefit. Their life savings have dwindled down the emergency fund is very low, and their credit card debt is high. The balance sheets show my clients assets and liabilities and verify their net worth. Any property including jewelry or saleable items is considered assets and can produce income. The asset value should have a fair market value, which means the amount of money they would have today if sold. Conversely, liabilities are debts that decrease the net worth. PERSONAL BALANCE SHEET: ______________________________________________________ Balance Sheet of December 31st, 2013 _______________________________________________________ Assets Liquid assets Checking account balance $ 4,000 Savings $ 5,000 Money market account $ 11,000 Cash value of life insurance $ 250,000 Total liquid assets $ 270,000 Household assets Current market value of home $ 235,000 Market value of vehicles $ 28,000 Jewelry $ 25,000 Studio/Stereo equipment $ 15,000 Total household assets $ 303,000 Investment assets Individual retirement accounts $ 150,000 College certificate $ 10,000 Total investment assets $ 160,000 Total assets $ 733,000 Liabilities Current Liabilities Credit card balances $ 20,000 Car loan $ 16,000 Student loans $ 120,000 Personal loan $ 15,000 Mortgage $ 201,000 Total Liabilities $ 372,000 Net worth (assets minus liabilities) $ 361,000 To improve my client’s understanding of their finances, I am recommending that a cash flow statement be created. Because some people are unaware of their financial outlook, creating a cash flow statement will provide the structure needed, thus providing information such as where the money is going and how much is remaining at the end of the month. A plus to developing a cash flow statement is the ability to analyze the fixed expenses with the income and savings and modify as needed. Latham’s cash flow statement. _______________________________________________________ Monthly cash flow statement for December 31st, 2013 _______________________________________________________ Cash Outflows: Mortgage $ 1,400 Property taxes $ 3,063 Car loan payment $ 565 Students loan $ 485 Credit card payments $ 600 Car/house/life insurance $ 250 Power $ 200 Water $ 70 Telephone $ 265 Gas/Transportation $ 400 Food $ 800 Clothing $ 100 Medical expenses $ 150 Entertainment $ 100 Gifts/donations $ 300 Total Outflows $ 8,748 Allocation of surplus: Savings (Emergency Fund) $ 800 Saving Goal $ 300 Surplus $1,100 The next recommendation would be to develop a personal budget for the Latham’s. This will allow them to have the proper foundation to establish strong financial understanding, develop strong money management skills that will pave the way long time financial security. Hence, I will determine their monthly income and show expenses to determine where modifications need to take place. IncomeActual Amt.PercentageProj Amount Salary $7,083 $7,083 Expenses Mortgage $1,400 $1,400 Property Tax $250 $250 Car Loan Payment $565 3% $548 Student Loan $485 4% $465 CC Payment $600 10% $540 House/Car/Life Ins $250 $250 Power $200 2% Water $70 $70 Telephone $265 10% $239 Gas/Transportation $400 $400 Food $800 10% $720 Clothing $100 50% $50 Med Exp. $150 $150 Entertainment $100 50% $50 Gift/Donation $300 30% $210 Saving/Emergency $500 $1,000 Savings Goal $300 $600 Based on the data, there is room for financial improvement. I would advise my clients to request lower interest rates on both their credit cards and car loan, and request student loan consolidation. Also, reducing the power usage in the home, change telephone plans to something more cost effective, and attempt to use coupons for grocery shopping when at all possible. Lastly reduce any spending on gifts, entertainment, and clothing would help in  improving the overall financial outlook. If the plan is followed, the Latham’s, would be able to increase the money deposited into the saving goal and emergency saving accounts. After a while, the money could be used to reduce the other debt. Having a personal budget is the blueprint for managing and spending finances. Use of the personal budget, gives you control over timely bill paying, monthly expenses, and provide an overall financial picture, so you know where you are each month. Utilizing a budget will allow better forecasting in long-term financial needs, which will help in better long-term savings, student loans can be paid sooner, and liquid cash can be readily available when needed. A personal budget is key in improving financial health. References: eHow. (2014). Retrieved from http://www.ehow.com/how_4475033_start-personal-budget.html Jack R. Kapoor, L. R. (2009). Personal Finance. In L. R. Jack R. Kapoor, Personal Financial Planner (pp. 1-69). McGraw-Hill Company.