Question

1)

Setting goals is one of the steps of the financial planning process. Provide some examples of financial goals that may be important for a family.

Select one goal that is important to you and briefly discusses how this goal will influence your future financial planning.

2)

Describe some common money management mistakes that can cause long-term financial concerns.         

Discuss how a budget might be changed if a household faced a decline in income. What spending areas might be reduced first?   

Review your own personal spending over the past few months. Identify sources of “money leaks”. (A “money leak” can be defined as an “unbudgeted” expenditure - to include going beyond the budget set for the item) .

Did the extent and/or category of the money leak surprise you? What might you do to control future money leaks?

Answer 1

Ans - (i) (a) Yes, goal setting is very important and is the first process of financial planning. Because without a goal you will not be able to do anything. Some financial goals that may be important for a family.

1 saving for a better future of children it includes studies, marriage, etc

2 To buy a car, home. or other luxury items can be a part of a financial goal

3 Plan for a holiday family trip can also be a part of the family's financial goal.

4 Early retirement and to spend time with family

(b) The one goal which will influence my financial planning is to pursue higher studies. Right now my only goal is to do Ph.D. from a reputed institute. I have done MBA in (Finance & Operation) and I want to do Ph.D., this keeps me motivated and helps me in cutting my spending on unnecessary stuff which in turn also helps me in managing my expenses in a better and right way. I have proper financial planning where and how to spend my money and how much to save to so that I can complete my studies in the near future.

(ii) (a) Common money management mistakes that can cause long term financial goals-

1 Not investing money in any financial security like Fixed income, Mutual funds, bonds, stocks, etc. as the inflation is growing it is advisable to invest money to match up with the financial needs

2 Tax management - Not managing tax properly because there are ways by which you can save your tax by proper tax planning.

3 Paying extra charges on all of your credit cards. Not paying attention to extra charges on credit card is a common mistake.

4 Spending more than you need can cause you long term financial harm because every amount which you save today and invest will you give you compounding benefits.

(b) If the family's income is declined due to any reason then their spending will also be reduced because spending is directly proportional to your income. The areas which spending might or should be cut down.

1 Cut in traveling expenses if using a luxury car.

2 cut eating in hotels and restaurants. 3 Loans or EMIs should not be taken during the financial crisis.

4 Cut down on Holidays and Branded products.

These the spendings which need to be cut down and also spending should be done on what is necessary for the family.

(c) My personal spending has been in ontrol over past months like I have spent on my clothing, food, rent, traveling, investment in financial products, etc. through there might be some leak. Some leaks which I have observed over the past months.

1 excess spending on clothes 2 spending weekends with my friends 3 extra charges on credit cards.

To control my spending I will cut down my weekends plan, stop spending on branded clothes, give extra care about my credit card bills.

(d) My extra leakage of money does not surprise me because I track my spending every month and my spending has been in the limit with some extra leakage. Extra spending was not that much which could surprise me.