Question

Pretend that you are your own financial planner and write a one to two page double spaced letter to yourself addressing at least two of the three learning goals of this lesson.

Learning Goals

1. Identify opportunities and challenges related to your cash inflows and outflows and make recommendations to assist yourself in meeting your current needs and long-term financial goals.

2. Explain the need for liquid assets and emergency funds and recommend strategies for accumulating the appropriate levels of funds.

3. Calculate savings required to meet financial goals and recommend how to incorporate planned savings into your cash flow plan.

Answer 1

1)Opportunities & challenges for cash inflows & outflows:

• Cash inflows come in the form of income, bonus or from any other investment sources. The challenge & opportunity in generating such cash flow is by working long hours, accepting additional responsibility at the workplace, choosing investments that provides higher returns & that are also safe & worth investing.
• Cash outflows occur through our fixed expenses that we incur every month in the form of rent, groceries, any other utilities etc. the challenge & opportunity here is that we try to reduce these expenses by moving to house of lesser rent, buying groceries at wholesale stores or places that provide discounts, cash backs etc.
• Other cash outflows occur in the form of vacations that we spend with our family. These are considered to be additional expenses. We can save on them by choosing between expensive trips or to a less expensive domestic adventure. This would be again a challenge as we need to convince children & other family members.
• Tax is another inflow & outflow for us. Inflow is when we get any refunds, reducing tax burden by making some tax saving investments etc. outflow is when we pay taxes. The opportunity & challenge here is that we need to find methods o reduce our tax burden by finding reasonable investment sources.
• Last is savings. This is how often we save or save only when there is left over income. This is an opportunity to secure our wealth. The challenge here is influenced by all the above things. Savings comes from how far we act brilliantly to reduce on our expenses & earn additional income.

Recommendations:

• Finding additional sources of income can be a good idea. Apart from our regular job, we try some online work at our leisure times, doing some trading like stock trading, commodity trading etc.
• By buying groceries & other utilities at places where they offer adequate discounts & cash back offers.
• Choosing investment plans that can provide good returns & also helps in providing tax deductions.
• Avoiding unnecessary luxuries, often going to theaters, restaurants etc.

1. Need for liquid assets & emergency funds:

These are required for both individuals & household people for the following reasons:

• Emergency funds are required to meet unplanned or unexpected situations like sudden hospitalization, layoff from the job etc.
• Liquid assets are those that can be easily converted to cash. If cash iis not readily available, we can use assets like gold etc. to convert them to cash to meet emergency situations.
• These types of emergency funds or liquid assets can help to manage our situation at least for a minimum period of six months.
• They can also be used to meet the needs in case of increased family members, arrival of new debt commitments etc.

Strategies for accumulating funds:

• Reducing on day to day expenses.
• Avoiding taking loans unnecessarily & frequently like avoiding taking loans for buying vehicles, taking too much of loan for buying luxury apartments etc.
• Savings on rent like staying in a place where the rent is low rather than paying higher rent & staying in luxurious home.
• You can also save buying LCD TV’s, iPods etc. rather we can own an ordinary tv or phone. Many people do this as a part of their prestige issue.
• Working hard to earn more. We can earn more only if we stretch at our young age & not when we become old.
• Making investments in field like real estate, buying gold etc.