financial planning case al-ghazali

21
MID - TERM PROJECT FINANCIAL PLANNING

Upload: nindya-harum-solicha

Post on 20-Aug-2015

174 views

Category:

Economy & Finance


2 download

TRANSCRIPT

Page 1: Financial Planning Case AL-Ghazali

MID - TERM PROJECT FINANCIAL PLANNING

Page 2: Financial Planning Case AL-Ghazali

!!

!!

GROUP MEMBER

!Arizal Khoironi 19011032

Nindya Harum Solicha 19011033 Vincya Tunggadevi 19011059 Nadhila Qamarani 19011093 Tejo Sandi Saputra 19011134 Reza Marta Fawzy 19011146 Fawwaz Lu’ay Putri 19011162

!!

Page 3: Financial Planning Case AL-Ghazali

!Table of Contents

!Chapter 1. Background…………………………………………………………………………………………………………………………………………… 1 1.1 Executive Summary …………………………………………………………………………………………………………………………………………… 1 1.2 Literature Review………………………………………………………………………………………………………………………………………………. 2 1.3 Assumptions……………………………………………………………………………………………………………………………………………………… 3 !Chapter 2. Al’s Financial Goals…………………………………………………………………………………………………………………………………… 4 2.1 Timeline before Financial Planning Process……………………………………………………………………………………………………………….. 4 2.2 Balance Sheet before Financial Planning Process………………………………………………………………………………………………………. 4 2.3 Cash Flow before Financial Planning Process……………………………………………………………………………………………………………. 5 2.4 Al’s Wants and Needs………………………………………………………………………………………………………………………………………… 6 2.4.1 Emergency Funds…………………………………………………………………………………………………………………………………… 6 2.4.2 Credit Card Debt……………………………………………………………………………………………………………………………………. 6 2.4.3 Wedding……………………………………………………………………………………………………………………………………………… 6 2.4.4 Honeymoon…………………………………………………………………………………………………………………………………………… 7 2.4.5 Car……………………………………………………………………………………………………………………………………………………… 8 2.4.6 House………………………………………………………………………………………………………………………………………………… 10 2.4.7 Pension Fund………………………………………………………………………………………………………………………………………… 11 Chapter 3. Suggestions…………………………………………………………………………………………………………………………………………… 13 3.1 Suggestion for allocating funds……………………………………………………………………………………………………………………………… 13 3.2 Balance Sheet after Financial Planning Process………………………………………………………………………………………………………… 16 3.3 Cash Flow after Financial Planning Process……………………………………………………………………………………………………………… 17 3.4 Conclusion……………………………………………………………………………………………………………………………………………………… 18 3.5 References……………………………………………………………………………………………………………………………………………………… 18 !

Page 4: Financial Planning Case AL-Ghazali

Chapter 1 Background

!1.1 Executive Summary !Al is a single man, 30 years old and worked in a private company in Jakarta as an assistant manager with an income of IDR 15 million net per month. Currently Al lives in an area around his office with a cost of IDR 2.5 million per month. Al has a car made in 2009 with the current value of about IDR 120 million. Al has always found time to hang out in cafes and going to the movies at least once a week with friends who spent a total cost of IDR 165,000. Additionally Al regularly visits fitness gym that requires a monthly fee of IDR. 300,000. Al's decided to do personal financial planning. Currently he has a savings at Mandiri Bank, IDR 30 million and deposits at BCA Bank with a total nominal value of IDR 150 million. He has a credit card debt amounting to IDR 16 million and he have to pay with installments of IDR 1.25 million per month. Al has monthly expenses such as: communication costs of IDR 230,000, gasoline, parking and car maintenance is IDR 600,000; clothes IDR 300,000; food IDR 800,000 and other personal purposes of IDR 750,000. Al also spent his money to contribute to his parents expenses for IDR 500,000. Besides that he also wanted to replace her car with Honda Brio vehicle in the next four years with current value of IDR 150 million. Al has a girlfriend, and he want to marry her two years from now and the wedding will cost IDR 80 million, now. He also plans to have honeymoon with his wife to the Bali Island with the current cost of IDR 7 million. Ten years from now, Al want to buy a house with a current price of about IDR 400 million. Since Al does not get any pension fund from the company his working for, he thought he needs to build his pension fund. He anticipated retiring at age 50 years old and considering surviving up to age 75 years. He estimated to live during his pension time with IDR 8 million per month today’s value. Al has not insurance yet and do not know whether if he needs one. !

1

Page 5: Financial Planning Case AL-Ghazali

1.2 Literature Review !FINANCIAL PLANNING

Financial planning is the process of setting, planning, solving financial problems and achieving financial goals by developing and implementing a financial plan which takes into account a person or family’s current situation and future goals.

Life goals include buying a home, getting married, raising children and planning for their education, insuring yourself and your family, setting aside money for retirement and investing it, estate and tax planning, etc.

EMERGENCY FUND

To estimate how much money should be set aside to pay for financial emergencies. It depends on factors such as:

Ψ Stability of income:

If you are salaried, the size of your fund will be smaller than if you own a business, especially a start-up.

Ψ Outstanding loan/EMIs:

The size of the emergency fund depends on your expenses, which include loan repayments. Thus, if you have outstanding loans on which you pay EMIs, you need a bigger fund.

Ψ Number of dependents:

If your spouse is not working and you have dependent parents and children, the size of the fund has to be bigger.

Ψ Size of liquid assets:

Many people invest a majority of their savings in non-liquid assets such as real estate, Employee Provident Fund, Public Provident Fund and long-term fixed deposits.

Ψ Medical insurance:

2

Page 6: Financial Planning Case AL-Ghazali

One of the objectives of building an emergency fund is to take care of unexpected medical expenses. Buying health insurance with cashless facility provides protection on this front. If you do not have medical insurance, you may have to set aside a bigger amount for medical exigencies.

!BASIC CONSIDERATIONS OF SAVING FOR RETIREMENT

Ψ What kind of retirement do you want?

To a large extent, maintaining financial independence in retirement depends upon the lifestyle you want.

Ψ When do you want to retire?

The earlier you retire, the shorter the period of time you have to accumulate funds, and the longer the period of time those dollars will need to last.

Ψ How long will retirement last?

Keep in mind that life expectancy has increased at a steady pace over the years, and is expected to continue increasing. For many of us, it's not unreasonable to plan for a retirement period that lasts for 25 years or more.

!1.3 Assumptions!The assumption used for this case are • risk profile: conservative to moderate • inflation: 10%, The inflation remains the same • target return: 15% • Al’s salary is considered constant !

!!!• The expense of living after marriage remains the same • The income from the future wife is not included in the

calculation

!

3

Page 7: Financial Planning Case AL-Ghazali

Chapter 2 Al’s Financial Goals

!2.1 Al’s Timeline

!!!!2.2 Balance Sheet Before Financial Planning Process

ASSETS LIABILITY

CURRENT  ASSETS Debt 16,000,000

Deposit 150,000,000

Saving 30,000,000 CAPITAL

FIXED  ASSETS Net  Worth 284,000,000

Car 120,000,000

TOTAL  ASSETS 300,000,000 TOTAL  LIABIBILITY  AND  CAPITAL 300,000,000

30 32 34 40 50 75

Timeline

Age

0 2! ! 4! ! 10! ! ! 20! ! ! ! ! 45

4

Page 8: Financial Planning Case AL-Ghazali

2.3 Cash Flow before Financial Planning Process

Monthly (IDR) Yearly (IDR)

Income

Salary 15,000,000 180,000,000

TOTAL 15,000,000 180,000,000

     

Expenses

Food 800,000 9,600,000

House Rent 2,500,000 30,000,000

Gym 300,000 3,600,000

Entertainment 660,000 7,920,000

Credit Card Installment 1,250,000 15,000,000

Communication Cost 230,000 2,760,000

Car maintenance, gasoline, parking cost

600,000 7,200,000

Clothes 300,000 3,600,000

Parents Expenses 500,000 6,000,000

Other Personal Purposes 750,000 9,000,000

TOTAL 7,890,000 94,680,000

Saving (Income-Expenses) 7,110,000 85,320,000

5

Page 9: Financial Planning Case AL-Ghazali

2.4 Al’s Wants and Needs ! 2.4.1 Emergency Funds !

Emergency Fund is a fund allocated separately for the emergency purposes, such as medical needs etc. this fund can help to support the lifestyle of its owner when the regular income is cut or no longer received.

Calculation :

• Al income : Rp15,000,000

= 3 x 15,000,000

= Rp45,000,000

From the measurement above shows that Al should spend his money of 45 million for Emergency Fund. We make the emergency fund based on the income because income is more stable than the expense.

2.4.2 Credit Card Debt !Previously, Al has already had a credit card debt

• Al’s Debt : Rp16,000,000

Debt is the first priority to be paid above all because it is a liability that Al must responsible for.

2.4.3 Wedding !Al planned to get married in the next 2 years. Calculation :

• Wedding cost in one year later

Wedding Cost in present : Rp80,000,000

6

Page 10: Financial Planning Case AL-Ghazali

Inflation : 10%

FV (one year later) = 80,000,000 x FV (1, 10%)

= 80,000,000 x 1.100

= Rp88,000,000

• How much Al should save in a month from now?

Future value of wedding cost : Rp88,000,000

!Saving amount per month = 88,000,000 / FVIFA (1, 15%)

= 88,000,000 / 1

= 88,000,000 / 12 months

= Rp7,333,333 or equal to Rp7,350,000 per month

From the calculation above shows that Al should save his money of Rp7,350,000 pe month for his wedding cost. Actually Al’s plan got merried in 2 years later but usually the Wedding Organizer wants to be paid one year earlier before the event, so we calculate it for next 1 year.

!2.4.4 Honeymoon !

Al wanted to spend his honeymoon in the next 2 years. calculation :

• Honeymoon cost in two years later

Honeymoon in present : Rp7,000,000

7

Page 11: Financial Planning Case AL-Ghazali

Inflation : 10%

FV (two years later) = 7,000,000 x FV (2, 10%)

= 7,000,000 x 1.210

= Rp8,470,000

• How much Al should save in a month from now?

Future value of honeymoon cost : Rp8,470,000

!Saving amount per month = 8,470,000 / FVIFA (2, 15%)

= 8,470,000 / 2.150

= 3,939,534.884 / 12 months

= Rp328,298 or equal to Rp330,000 per month

From the calculation above shows that Al should save his money of Rp330,000 per month for his honeymoon cost. His honeymoon cost is not included to his wedding cost so we calculate it for next 2 years not next 1 year.

!2.4.5 Car !

Al wants to buy Honda Brio vehicle in the next four years with current value of IDR 150,000,000. With the Inflation rate 10%, fhe future value of the car’s price will be at IDR 219,615,000.

Here the calculation:

8

Page 12: Financial Planning Case AL-Ghazali

!!

Now, Al currently has a car made in 2009 with the current value of about IDR 120,000,000. This car will depreciate, and the future value of the car’s price will be at IDR 78,732,000 with the Inflation rate of 10%,

Here the calculation (using the Straight Line Method):

!!!!

In the next four years, Al wants to replace his car with Honda Brio. However, Al is only going to pay the down payment in the fourth year, i.e. 30% of the future price. Thus, the down payment will be around IDR 65,884,500.

Here the calculation:

!Fortunately, Al just wants to pay the down payment in the fourth by using the money from the sale of his old car, and then the rest of the money in year four is IDR 12,847,500.

Here the calculation:

9

Page 13: Financial Planning Case AL-Ghazali

2.4.6 House !Al targeted to have his own house by paying the down payment for the house at the next 10 years. Calculation :

• House price in 10 years later

House price in present : Rp400,000,000

Inflation : 10%

FV (ten years later) = 400,000,000 x FV (10, 10%)

= 400,000,000 x 2.594

= Rp1,037,600,000

In the next 10 years, Al is only going to pay the down payment which is 30% of the future price

• How much Al should save in a month from now for 30% of down payment?

Future value of house price : Rp1,037,600,000

30% of house future price : 311,280,000

!Saving amount per month = 311,280,000/ FVIFA (10, 15%)

= 311,280,000/ 20.304

= 15,330,969.27/ 12 months

= Rp1,277,580.772 or equal to Rp1,280,000 per month

10

Page 14: Financial Planning Case AL-Ghazali

From the calculation above shows that Al should save his money of Rp1,280,000 per month for his house down payment in the next 10 years.

!2.4.7 Pension Fund

Al already thinking about his retirement recently and had already targeted how he wanted to live his retirement life. Al Planned to retire at the age of 50 which is 20 years from now. And wanted to receive 8 million per month (today’s value) during his retirement life.

Projec'ng  Re'rement  Income  and  Investment  Needs

1 EsJmated  Household  Expenditures  in  ReJrement

A Approximate  number  of  years  to  reJrement   20

B current  level  of  annual  household  expenditures,  excluding  savings 94,680,000

CEsJmated  Household  Expenses  in  ReJrement  as  a  percent  of  current  expenses 101%

D EsJmated  annual  household  expenditures  in  reJrement 96,000,000

2 EsJmated  Income  in  ReJrement

E social  security,  annual  income 0

F company  /  employer  pension  plans,  annual  amounts 0

G other  sources,  annual  amounts 0

H total  annual  income   0

I addiJonal  required  income,  or  annual  shorYall 96,000,000

3 inflaJon  factor  

11

Page 15: Financial Planning Case AL-Ghazali

So, the amount that Al should prepare from now is IDR 5,260,000 per month for the next 20 years, to be able to have a

retirement life he dreamt of.

!!

J expected  average  annual  rate  of  inflaJon  over  the  period  to  reJrement 10%

KinflaJon  factor  :  based  on  20  years  to  reJrement  and  expected  average    annual  rate  of  inflaJon  of  10% 6.727

L size  of  inflaJon  -­‐  adjusted  annual  shorYall   645,792,000

4 funding  the  shorYall  

M anJcipated  return  on  assets  held  ader  reJrement 10%

N amount  of  reJrement  funds  required  -­‐  size  of  nest  egg 6,457,920,000

O expected  rate  of  return  on  investments  prior  to  reJrement 15%

Pcompound  interest  factor  :  based  on  20  years  to  reJrement  and  an  expected  rate  of  return  on  investments  of  15% 102.444

Q annual  savings  required  to  fund  reJrement  nest  egg 63,038,538

monthly  saving  needed  for  Pension  Fund 5,253,212

*assuming  the  anJcipated  return  on  assets  held  ader  reJrement  is  10%

Note  :  part  1  and  2  are  prepared  in  terms  of  current  (today's)  rupiahs

Projec'ng  Re'rement  Income  and  Investment  Needs

12

Page 16: Financial Planning Case AL-Ghazali

Chapter 3 Suggestions !!

3.1 Suggestion for allocating fund !In this suggestion, we didn’t intend to change Al’s habits at all neither his lifestyle. These suggestions are made adjusting with Al’s usual habit, works, expenditures, and dreams. We didn’t encourage him to find side jobs or lessen his expenses. Al can implement this plan with his current habits.

• Paid by Deposit

1. Emergency Fund

As important as its name, this fund is critically important to be fulfilled as soon as possible to provide more sense of safety and security. We suggest that Emergency fund should be paid from deposit because in order to fulfill it soon since it is so important and Al’s deposit has plenty money available in it.

Calculation :

= Deposit – Emergency Fund

= IDR150,000,000 – 45,000,000

=IDR105,000,000 as the remaining amount of Al’s Deposit

2. Wedding Cost

Wedding Cost must be prepared fast (in the range of 1 year) with its big amount. In order to avoid more burdens to pay it monthly in the future, we choose to suggest to pay the wedding cost at once, from deposit available, instead of monthly payment. We didn’t use savings because the funds needed for wedding cost is bigger that the Al’s savings.

13

Page 17: Financial Planning Case AL-Ghazali

Calculation :

= Remaining amount of Deposit – Wedding Cost

= IDR105,000,000 – 88,000,000

= IDR17,000,000

So, the final amount of Al’s Deposit left is IDR17,000,000

!• Paid by Saving Account

1. Credit Card Debt

We know that debt should be paid first before anything else. So we suggest Al to pay the debt first, from his saving because saving is the most liquid of financial instrument and the amount of debt can be covered with it.

Calculation :

= Saving – Credit Card Debt

= IDR30,000,000 – 16,000,000

= IDR14,000,000 as the remaining amount of Saving

!• Paid by Mutual Fund with return 15% (moderate risk profile)

The rest of Al’s dream requires a lot of money that Al doesn’t have now. So we suggest Al to use mutual funds with the target return 15% that’s suitable with Al’s moderate risk profile. With this instrument, Al can prepare the funds monthly and put it in the mutual fund in order to prepare the funds needed for his dreams.

The table of contents is empty because you aren't using the paragraph styles set to appear in it.

14

Page 18: Financial Planning Case AL-Ghazali

!

The total investment allocation per month will be paid by Al’s monthly salary left after paying the all of his expenses. Calculation :

= Monthly salary after expenses – Total investment allocation per month

= IDR8,360,000 – 6,870,000

= IDR1,490,000

After paying the investment, Al still have IDR1,490,000 left from his monthly salary. So, we suggest Al to put the remaining monthly salary amount into his saving account.

!!!!!

Target  Return   Investment  Allocation  per  Month

Honeymoon 15% 330,000

House 15% 1,280,000

Pension 15% 5,260,000

Total   6,870,000

15

Page 19: Financial Planning Case AL-Ghazali

!3.2 Balance Sheet after Financial Planning Process !

!!!!!!!!!!!

ASSETS LIABILITY

CURRENT  ASSETS Debt 0

Deposit 17,000,000

Saving 15,490,000 EQUITYCURRENT  INVESTMENT

Net  Worth 159,360,000

Mutual  Fund 6,870,000

FIXED  ASSETS

Car 120,000,000

TOTAL  ASSETS 159,360,000 TOTAL  LIABIBILITY  AND  EQUITY 159,360,000

16

Page 20: Financial Planning Case AL-Ghazali

3.3 Cash Flow after Financial Planning Process !

!!

Income Monthly (IDR) Yearly (IDR)

Salary 15,000,000 180,000,000

TOTAL 15,000,000 180,000,000

Expenses (IDR.) (IDR.)

Food 800,000 9,600,000

House Rent 2,500,000 30,000,000

Gym 300,000 3,600,000

Entertainment 660,000 7,920,000

Communication Cost 230,000 2,760,000

Car maintenance, gasoline, parking cost 600,000 7,200,000

Clothes 300,000 3,600,000

Parents Expenses 500,000 6,000,000

Other Personal Purposes 750,000 9,000,000

Allocation for mutual fund 6,870,000 82,440,000

TOTAL 13,510,000 162,120,000

Saving (Income-Expenses) 1,490,000 17,880,000

17

Page 21: Financial Planning Case AL-Ghazali

3.4 Conclusion

!As a 30 year old man, Al already started to think about his dreams and goals for the future. With his current situation Al wishes to make sure that his dreams are achievable by financial planning. Al has deadlines for all his dream and this financial plan make sure that Al can attain his dream by the deadlines. After doing all the calculation, we creates suggestions and plan that Al must do in order to make all of his dreams come true in time. As Al’s financial planner, we didn't encourage Al to find side job or additional income. We also didn't suggest him to cut his expenses. The plan that we made for Al can be achieved with Al’s current situation and even, with this plan, Al still has money left each month for saving. This plan is attainable and reasonable for Al because he already has sufficient funds and by implementing this plan, Al only has to do what he usually does. There is no need for Al to change his lifestyle so we are sure that it’s easy for Al to implement this plan in his life.

!3.5 References !References (access on February 26th, 2014):

Ψ http://www.rit.edu/ntid/personalfinance/system/files/financial-planning-101_0.pdf" 21

Ψ http://en.wikipedia.org/wiki/Average_propensity_to_consume

Ψ http://www.rochepartners.com/files/What_You_Should_Know_About_Financial_Plannning.pdf

Ψ http://www.ifphk.org/pdf/Publications/Con_Bro_FP_in_Nutshell.pdf

Ψ http://www.theamericancollege.edu/assets/pdfs/fa262-class1.pdf

Ψ http://businesstoday.intoday.in/story/financial-planning-tips-to-save-money-for-emergencies/1/189358.html

Ψ http://www.moneysense.gov.sg/~/media/Moneysense/Guides%20and%20Articles/Guides/The%20MoneySENSE%20guide%20to%20planning%20for%20your%20familys%20financial%20futureEnglish.pdf

Ψ http://bizfinance.about.com/od/interestrates/f/How-To-Calculate-The-Present-Value-Of-A-Single-Amount.htm

18