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Comprehensive Financial Plan
Jaber Al Jabri
Professor Misty Castle
Fin 442
28 March 2023
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Financial Plan
Table of Contents
Engagement Letter 3
Executive Summary 5
Analysis of The Current Situation 6
Financial Statements 6
Balance Sheet 6
Cash Flow Statement 7
Ratio Analysis 8
Budget/ Cash Management Recommendations 9
Emergency Fund Recommendations 10
References 11
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Engagement Letter
Trust Financial Firm
Date: 28/3/2023
Client’s Name: John Harris
Client’s Address: Mayfield, U.S. 698 Candlewood Lane
Dear John Harris:
Thank you for choosing Trust Financial Firm to work with you. We are committed to
providing you with quality financial advice and guidance to help you achieve your financial
goals.
Based on our discussion, we understand that you are a recent college graduate of 34
years of age, employed full-time with an annual salary of $60k, and have no debt. You also
have a part-time job from which you receive $250 per month and contribute $500 to a savings
account with a current balance of $5000. In addition, you have no tangible investments and
have been paying your taxes in full.
We would like to offer our expertise in the following areas:
1. Preparing a cash flow report and setting aside money for an unexpected expense are
two parts of financial planning.
2. Wealth management approach and preparation, including a review of your existing
equity investment;
3. Considering the likelihood of achieving your retirement objectives by the time you
retire; and
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4. Considering your estate's total value and solvency, as well as whether or not a trust
should be established for the advantage of your grandchildren, are all part of estate,
gift, and asset transfer planning.
Our advice and guidance can provide you with the information and knowledge
necessary to maximise your financial growth.
Thank you for working with us. You may reach us at [email protected] or
+1 (800) 942 4567.
Sincerely,
Trust Consultants
[Jaber Al Jabri]
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Executive Summary
This executive summary outlines the goals, recommendations, implementation plan,
and review schedule of Trust Financial Firm for our client, a recent college graduate of 34
years of age with an annual salary of $60k, part-time income of $250 monthly, and a savings
balance of $5000. The client has no debt, no tangible investments, and has been paying their
taxes in full. The primary goal is to help the client maximise their financial growth. To
achieve this goal, we have created a comprehensive plan which includes cash flow planning,
investment planning, retirement planning, and estate, gift and wealth transfer planning.
The main recommendations are to prepare a cash flow summary, review the current
investment portfolio, develop and implement an asset management strategy, assess the
likelihood of meeting the retirement target goals, assess the estate net worth and liquidity, and
review whether creating a trust for the benefit of grandchildren is a viable option. Our
implementation plan involves us meeting with the client to discuss their individual goals and
objectives and come up with an action plan for each recommendation. We will then monitor
progress, review the plan regularly, and make adjustments as necessary depending on the
client's situation.
We will review the client's plan on a quarterly basis to ensure that they remain on
track to meet their financial goals. If any adjustments need to be made in order to achieve
their goals, we will make those adjustments and inform the client accordingly. We look
forward to helping the client reach their financial goals.
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Analysis of The Current Situation
The client is a young adult 34 years of age. They recently graduated from college and
are employed full-time with an annual salary of $60k. They have no debt and do not own a
home or vehicle. In addition to their salary, they receive $250 monthly from a part-time job.
The client plans to save 10% of their income each month and is currently contributing $500
per month into a savings account, with a current balance of $5000. Furthermore, the client
has no tangible investments and has always paid their taxes in full (Tarver, 2022). The client
is uncertain about how to best manage their finances going forward and understands that they
may need to be more strategic with their money to make their future financial goals a reality.
Financial Statements
Balance Sheet
Current Assets $5,000
Non-Current Assets $0
Liabilities $0
Net Worth $5,000
The client’s balance sheet is a snapshot of their overall financial position. The client’s
assets are officially divided into two categories: current assets and non-current assets.
Current Assets: The client's current assets include their cash and cash equivalents,
such as their $5000 savings account balance. The client's other current assets include any
property or items that can easily be converted into cash in one year or less, such as pending
tax refunds or investments that can be liquidated quickly.
Non-Current Assets: The client's non-current assets are not as easily convertible into
cash, such as real estate investments or valuable items like furniture or jewellery (Tarver,
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2022). Because the client does not own any real estate or other non-current investments, their
non-current asset total is currently $0.
Liabilities: Liabilities are amounts of money the client owes to others. The client has
no liabilities at this time.
Net Worth: The client's net worth is the amount of all their assets minus their
liabilities. As they currently have no liabilities, the client's net worth equals their total assets,
which is $5000.
Overall, the client's balance sheet indicates a healthy financial situation. By saving
10% of their income each month, they have built up a cash cushion of $5000 that can be used
for emergencies or investing purposes. With no liabilities and low net worth, the client can
consider taking greater financial risks that can potentially lead to higher returns, such as
investing in stocks or starting a business (Hanlon, 2021). The client may also need to
consider taking out a loan if they want to make a large purchase (like buying a home). With a
responsible financial plan, the client should be able to achieve their future financial goals and
objectives.
Cash Flow Statement
The client's cash flow statement records all the money that enters and leaves their
bank accounts over a certain period. The client has only one source of income: their full-time
salary of $60,000 per year. Other sources of income include the $250 per month from their
part-time job. Expenses include rent, food, clothing, utilities, and other daily expenses.
Expenses also include any loan payments, taxes, or investments that need to be made. The
client's total monthly expenses should not exceed the total amount of their income.
Any excess funds remaining after expenses are paid generally put into savings. With
careful budgeting and proper management of income and expenses, the client should be able
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to build up a healthy savings balance. This money can then be used for investing or other
longer-term financial goals. Overall, the client's cash flow statement is a good indication of
their overall financial situation. By managing their expenses and saving any excess funds, the
client should be able to create and maintain financial stability.
Ratio Analysis
A ratio analysis is a useful tool to analyse a business's or individual's financial health.
The following ratios can be used for the client to evaluate their financial situation.
Liquidity Ratio: This ratio measures a company's ability to pay off its short-term
debts. The client's liquidity ratio would be calculated as total assets divided by total
liabilities. Since the client has no liabilities, the ratio would be 1.00, indicating the client's
liquidity is very high.
Debt to Equity Ratio: This ratio measures how much debt a company has relative to
their assets. The client's debt-to-equity ratio would be calculated as total liabilities divided by
total assets. Since the client has no liabilities, the ratio would be 0.00, indicating that they do
not use any debt to finance their investments.
Current Ratio: This ratio measures a company's ability to pay off its short-term
liabilities. The client's current ratio would be calculated as assets divided by liabilities. Since
the client has no liabilities, the ratio would be 1.00, indicating that they can easily pay off any
debts they may incur shortly.
The client is doing many things right when it comes to their finances. By having no
liabilities and actively saving 10% of their monthly income, the client is already taking steps
towards achieving financial stability. However, the client can further strengthen their
financial position by investing their savings in a diversified portfolio that includes stocks,
bonds, mutual funds, and other investments (Hanlon, 2021). They should also consider
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consulting with a financial advisor or certified financial planner to develop a more
comprehensive financial plan that includes risk management, retirement planning, and other
long-term goals. Additionally, the client may benefit from exploring different tax planning
methods and taking advantage of any opportunities to reduce their tax liability.
Budget/ Cash Management Recommendations
The client should create a budget that includes their necessary expenses, including
rent, food, clothing, utilities, and other day-to-day expenses. It is also important to include
any additional sources of income, such as the $250 per month from their part-time job
(Maurer, 2022). Expenses should be divided into short-term, medium-term, and long-term
goals. For example, short-term goals may include saving for a down payment on a house or
car, while long-term goals may include retirement savings or college tuition.
The pros of this recommendation include improved financial security and the ability
to set goals for the future. Additionally, it can help to reduce stress and anxiety related to
money management. This is something that the client can begin implementing right away and
will not require them to wait until they have the most free cash flow or wait on something
else to be completed.
The potential cons of this recommendation include the time commitment required to
create and implement the budget and the possibility of feeling overwhelmed when first
creating the budget. Additionally, it could mean cutting back on current spending or delaying
certain purchases to achieve long-term financial goals (Beniwal, 2022). The impact of this
recommendation on the client’s current cash flow may be minor initially, but over time they
may see an increase in their day-to-day cash flow as their budgeting system begins to take
effect.
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The impact on taxes depends on how the client allocates their investments and how
much money they save in retirement accounts. An alternative recommendation would be for
the client to focus on paying off any outstanding debt, such as credit card bills. Paying off
debt can reduce the interest they are required to pay and help improve their overall financial
stability.
Emergency Fund Recommendations
My top recommendation for the client is to create an emergency fund immediately.
An emergency fund is a pool of funds that can be used for unexpected expenses or other
needs in an emergency (Maurer, 2022). The client should save enough money to cover at
least three months of living expenses, with an ideal goal of saving six months' worth in their
emergency fund. This will allow them to have adequate funds if they experience the loss of a
job or other financial issues.
The pros of this recommendation are that the client will have a financial safety net if
they experience an emergency or job loss. The client can easily add money to their
emergency fund through regular contributions and budgeting (Beniwal, 2022). The impact of
creating an emergency fund on the current cash flow will be a decrease in the amount of
money available for other expenses, but this will be made up for in the long term if a
financial emergency arises. Additionally, there will be no impact on the client's taxes due to
creation of an emergency fund.
An alternative to the client creating an emergency fund would be for them to invest
their money in a diversified portfolio. Investing in a diversified portfolio allows the client to
potentially earn higher returns. However, it also comes with more risk. Additionally, the
client would not have immediate access to the funds if needed in an emergency.
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References
Beniwal, H. (2022, April 2). Importance of Financial Planning in your life. The Financial
Literates. Retrieved March 28, 2023, from https://www.tflguide.com/importance-of-
financial-planning/
Hanlon, S. (2021, January 7). Importance of Financial Planning. Forbes. Retrieved March
28, 2023, from https://www.forbes.com/sites/advisor-
intelligence/2019/09/20/importance-of-financial-planning/
Maurer, T. (2022, February 22). Financial planning: What it's not and what it is. Forbes.
Retrieved March 28, 2023, from
https://www.forbes.com/sites/timmaurer/2022/02/20/financial-planning-what-its-not-
and-what-it-is/
Tarver, J. (2022, July 14). Financial Planning Basics. Forbes. Retrieved March 28, 2023,
from https://www.forbes.com/advisor/investing/financial-advisor/financial-planning/
