My Financial Goals Essays Example

Introduction

This financial year plan was the occasion for me to take an in-depth look at my financial situation and how it will change after graduation. I had to make compromises in order to be able to reach both my personal and financial goals. I will first present the goals I have set for myself – and why. Secondly, I will show how my budget had to be adapted and then I will show the forecast of my financial situation in one year.

Discussion

As can be seen from the worksheet 1.1; I have set 5 financial goals for myself. The short-term goal that I must reach within next year is to save $1,000 in order to increase my net worth (or to be more precise – decrease the amount by which it is negative!). My goals to be reached within 2 to 5 years are successfully passing the first two levels of the CFA qualifications: I believe this will help me for my future career in finance and I will reap the rewards from this investment. The $2,000 cost includes the exam registration, the Schweser notes to help me prepare and the partial opportunity cost of studying for the exam. I also added that I want to buy a BMW sedan, an upgrade from the current car I will need to use for this year’s budget. Finally, my long-term goals are simple: I want to be able to buy a house for myself.

Achieving the goal

In order to achieve my $1000 savings goal in the first year of my working life, I had to make choices. This requires me to put aside roughly $84 every month on average over the course of a year. I started the cash budget (Worksheet 2.3) with thinking I would live in the nicest flat downtown, as I would have liked to live in a dynamic area and was fine using public transportation. However I quickly realized after accounting for all the expenses that I would reach a deficit of roughly $2,500 over the whole year. I decided that the price of the flat was a standard of living I could not afford yet and preferred to reach my saving goal and go on holidays in Florida instead.
I then designed a second cash budget that is more convenient for me:
I live in the boring suburbs of Katy, but the apartment is nice and it is $700 cheaper than the flat downtown
I opted out from public transportation and took the boring but dependable Honda Civic, which will do fine for my first year. Since this is an expense mostly related to the fact that I live in Katy; over the course of a year the opportunity cost of living downtown compared to living in Katy with the Honda Civic is $5,800. This sum can now be reallocated towards expenses better suited to my budget.
I allowed myself 350$ of food expenses instead of the minimum given of $300; it allows me to go eat out a few times a month
I also allowed myself the $2000 holidays in Florida in November – I cannot compromise on travels and holidays.
Using all other expenditures at the basic level – because they do not matter much to me – I manage to generate a yearly cash surplus of roughly $1,000, just in line with my goals, and without compromising on things I really enjoy such as travelling.

Discussion questions

Did you become solvent? What was your savings ratio?
Yes, my plan allowed me to remain solvent. I cannot indulge in many extra spending but I can reach my goal of saving c.a. $85 dollars per month. With a take-home pay including all bonuses of about $34,350 for a year, my saving objective of $1,000 represents a 2.9% savings ratio. While it does not look impressive, starting in life I have a high share of fixed costs. However when looking to my disposable income after expenses of about $5,350, we can see that I set aside close to 20% of my disposable income.
Did you increase your liquid assets or investments?
I increased my liquid assets: the cash saved was put in a savings account. Investing in housing is clearly out of the question for me. Stocks would be attractive, however I do not want to expose myself to liquidity risk as I might need the cash for the foreseeable future: I believe to invest in stocks one has to have a “cash cushion” available to face unexpected problems. Therefore, I chose to place the cash in a savings account, as this will still allow me to get a minor yield on my funds.

What did you learn about planning?

Thanks to this assignment I realized a few key points regarding planning. Firstly, I noticed the importance to be mindful of fixed costs and their effect on a budget: going to leave in a more boring suburb and taking a simple car allowed me to free $5,800 for my goals. Surely I lose some advantages, but looking at it this way I do not believe these advantages are worth this much to me. An interesting point is that $5,800 is more than my disposable income – put another way, if I chose the luxury flat I could not have reached my goals, no matter the other changes I was doing to my budget. Secondly, I have found it helpful to visualize a cash budget and relate it to my balance sheet the next year. My cash budget need to be positive in order to increase my net worth.

Conclusion

I have found this assignment helpful: I have learned to set goals and use a cash budget as the main tool with which to attain them. I realized the links between the budget, the income statement and the balance sheet. Moreover I learned to be mindful of high fixed costs and learned to quantify them. The main example of this is the $5,800 opportunity cost per year of living downtown compared to living in a more boring neighborhood – but with a car: this clearly gives another view to the decision and helped my decision-making process.

Appendices

PUT YOUR NAME ON THE WORKSHEETS 1, 2, 3, 4 AND INSERT THEM HERE