The three common obstacles are wrong thinking, delayed action and financial illiteracy.
Wrong thinking: People think the Financial Planning is only for rich man, only when get older, and primarily tax planning, not trust Financial Planner.
Delayed action: People do not plan until money crisis occurs.
Financial illiteracy: People always have immeasurable financial goals, make decision with understanding their effects on other financial issues, expecting unrealistic returns on investments, confusing financial planning with investing.
b)
(i) Cash Flow Statement
Cash Flow Statement of Guo Jin, as at 31 December 2010
　
　
INCOME (Positive Cash Flow)
　
　
　
Gross Salary and bonus (including employee's CPF of $7200)
$43,200
　
Employer's CPF contribution
$5,040
　
　
　
TOTAL INCOME
$48,240
　
　
SAVINGS
$8,000
　
　
EXPENSES (Negative Cash Flow)
　
　
　
Fixed
　
Give to Parents
$3,600
　
House Rental
$4,800
　
Network and Phone bill
$1,200
　
Insurance Premiums
$150
　
Total Fixed outflow
$9,750
　
　
　
Variable
　
UniSIM School Fee
$9,300
　
Food
$4,800
　
Transportation
$600
　
Clothing
$1,200
　
Entertainment/ Vacation
$2,000
　
Total Variable outflow
$17,900
　
　
　
TOTAL OUTFLOW
-$27,650
　
　
NET INFLOW (SURPLUS)
$20,590
(Total Income - Total Outflows）
　
　
　
(ii) Net Worth Statement
Personal Balance Sheet of Chan Chang Weng, as at 31 Decemeber 2010
　
　
ASSETS
　
　
　
　
LIABILITIES
　
　
Saving account
$30,000
Credit card outstanding
$6,000
　
TOTAL CASH
$30,000
　
　
　
INVESTED ASSESTS
　
CPF saving
$30,000
　
Total invested Assets
$30,000
　
　
　
ASSETS FOR PERSONAL USE
　
Computer
$500
　
Cell phone
$500
　
Total Personal use assets
$1,000
　
　
　
Total Assets
$61,000
Total Liabilities
$6,000
　
　
　
　
　
　
　
　
Guo Jin's Net Worth : $55,000
c)
Basic liquidity
Cash/near cash / monthly expenses
$8,000 / $2,304.17 = 3.47
It is within the acceptable range of 3 to 6.
Saving ratio
Saving / gross income
$ 8,000 / $48,240 = 16.7%
The minimum level of 10%, consider acceptable.
Liquid assets to net worth ration
Cash/near cash ÷ net worth
$30,000 / $55,000 = 54.5%
Minimum level is 15%, Liquid asset is very high at 54.5% but generate low returns.
Debt to asset ratio
Total liabilities ÷ total assets
$6,000 / $61,000 = 1%
Not more than 50% is considered as safe, it is maximum safe level.
Solvency ratio
Total net worth ÷ total assets
$55,000 / $61,000 = 90.2%
It is high safe level.
Net investment assets to net worth ratio
Total invested assets ÷ net worth
$30,000 / $55,000 = 60%
It is healthy situation.
Question 2
a) The difference between Singapore Government and Treasury Bills is:
Singapore Government Securities is long-term debt securities, maturity is 2, 5, 7, 10, 15, 20 years, and pay a fixed rate of interest of bonds every 6 months until maturity date;
Treasury Bills is short-term securities, maturity is 3 months and 12 months, and do not pay a fixed rate of interest of bonds, it brought at a price less than the face value and sold at the face value.
b)
Benefits
Investors earn yearly coupon;
Flexibility - Investor can withdraw cash if they need cash to spend on some urgent matters from the interest payments which generate periodic cash flows before the maturity of Singapore Government Securities;
Personal interest income form Singapore Government Securities is tax free;
Liquidity - The secondary markets is available for investors to buy new Singapore Government Securities or sell the Singapore Government Securities before the maturity;
Low risk - Singapore Government Securities can help investors to reduce the risks.
Risks:
Investors if would like to sell the bond before maturity, the selling price is fluctuated and maybe higher or lower than the price which investors brought;
In case of Financial Crisis or Credit Risk of Singapore Government, the price of investors bond would be affected.
c)
Because T-Bill do not have coupon payments, the case is Singapore Government Securities.
(Face Price - Purchase Price) + Coupon Payment / Purchase Price = return
ã€(100 - 93) + 6 】/ 93 * 100% = 14%
Question 3
a) The 4types of CPF Life Plans are LIFE Plus Plan, LIFE Balanced Plan, LIFE Basic Plan and LIFE Income Plan.
LIFE Plus Plan: This Plan is refundable, it gives parents Higher Monthly Payout, but leave Lower money to beneficiaries compare with Plan (2&3);
LIFE Balanced Plan: This Plan is refundable, it gives parents Medium Monthly Payout and leave Moderate money to beneficiaries compare with Plan (1&3);
LIFE Basic Plan: This Plan is refundable, it gives parents Lower Monthly Payout, but leave Higher money to beneficiaries compare with Plan (1&2);
LIFE Income Plan: This Plan is Non-Refundable, it gives parents Highest Monthly Payout, but leave no money to beneficiaries compare with Plan (1, 2&3).
b)
The most appropriate plan for my Dad will be LIFE plus Plan with Monthly Payout from Age 65 of 988-1104.
It would be the better choice to receive the highest Payout and earliest start age ( Plan1,2&3) from age 65, my Dad can enjoy life and does not need to work anymore, the bequest is not important for me.
