Question

5. For each of the following, provide and explain which 3 elements of financial planning might be most important to each couple, and explain why each of your chosen elements would be important to each of them.

• A young married couple with two children and both spouses work.

• A couple approaching retirement, one of whom works and whose two children are both working and living outside the home. Your answer should be between 1.5 and 2 pages in length.

Marking Grid:

• Important elements for young married couple. 3.3 pts each = 10 pts.

• Important elements for couple approaching retirement. 3.3 pts each = 10 pts.

Answer 1

Let us first broadly recollect what are the elements of financial planning.

Managing finance is a huge task when it is not done with proper planning, therefore it is better to divide it into various elements so that proper decision regarding each aspect of finance can be taken and one can identify which aspect he wants to focus on the most. The elements of financial planning include tax planning, insurance planning, education planning, estate planning, investment planning, etc.

In our first case, there is a young married couple (both working) with 2 children:

Now that it is told that the couple is young, the children must be dependent on parents. So one aspect that gains a lot of importance for this couple is to properly plan the future of their children. So education planning comes into picture. The ideal education funding strategy must be identified and accordingly the young couple should start saving for the children's college. Another element important for this couple is insurance planning, since not everyone in the family is independent, proper insurance policy must be taken of the lives of the earning members to take care of the dependent ones in their permanent absence from the world. Third element is investment planning, now that there are 2 working members in the family, it is better to know the right investment opportunities and follow them right from the start. They must also seek to invest their funds in such a manner that they get tax advantage from investing. They must not forget that money attracts money but not when it is not invested correctly. They must benefit from the magic of compounding and start saving atleast small amount for their retirement and old age. It is better to start early.

In the second case, we have a couple (one of whom is working) approaching retirement with 2 independent children:

Here, since they have already approached their retirement age, it is too late to start their retirement planning from the scratch now. That must have been done earlier. At this stage, estate planning is an important element for them i.e. when they are no longer in control either because of health issues or death, they must plan about who inherits what and how they desire certain things to take place. Another important element for them is cash flow planning, since only one spouse is earning and even he is approaching his age of retirement, the cash inflow (post retirement) in the form of pension,etc and outflow in form of living expenses must be properly planned so as to ensure financial independence. Here for them again investment planning becomes essential, all their young age they must have saved and invested, now they must revisit their investment strategy and see what changes need to be made there. The funds saved for retirement will now come to use.