It was a delicate act preparing the financial budget for Grace Packer. However, the financial or personal objectives have really helped in selecting some of those activities that need urgent attention while postponing the rest to a later date. Grace knows how to prioritize her activities and her ability to live within her means is impeccable. It is therefore highly recommended that her financial austerity is appreciated while developing the budget that will help her to attain future short-term and long-term goals. The different worksheets have unique items that contribute towards the budget-making process.
Worksheet 1 has the short-term, medium-term and long-term goals. All the goals have their strengths and weaknesses but they are still realistic and achievable within the stated time. The goals must be met within their timeframes which might put significant pressure on the current income (Brigham et al ., 2016). Any issue that affects the current plan or cash inflow will also have a significant effect on the goals. Packer must evaluate her sources of income and if possible she should invest in income generating activities so that she can meet her medium term and long term goals otherwise some will not be achieved. However, Parker can push herself beyond the limit using her current income in order to achieve the medium term and long term goals (Keown, 2013). The achievement of all goals within the stipulated time if all other factors are held constant will make Parker a wealthy person.
Delegate your assignment to our experts and they will do the rest.
Worksheet 2 has the rankings of her financial objectives which was easy to determine given that she knows her priorities quite well. Her financial objectives can remain the same if everything remains the same and no significant issues that affect the objective arises. Some events can also turn less important objective to crucial (Keown, 2013). Worksheet 4 has Parker‘s assets and liabilities. The assets are more than the liabilities implying that Parker can easily pay off any debts without affecting her ability to achieve the desired goals (Faulkner, 2017). The difference between her assets and liabilities pushes her net worth to a high position. However, her net worth is inadequate to fulfill her present value of the long-term budget requirements. Therefore it is difficult for her to achieve the long-term goals.
Worksheet 5 has an income statement which includes the income and expenditures of Parker. Her expenditures are very low compared to the income and therefore she is left with lots of savings that can be used to meet short-term objectives. Similarly, she can also use her savings for investment purposes and therefore generate more income in future to meet medium-term and long-term goals. Any investments in profitable ventures will likely enhance her ability to attain her medium term and long term goals (Brigham et al., 2016). Parker has a high chance of achieving her short term, medium term and long term goals based on her current income and expenditures. Similarly, the ability to achieve such depends on other issues, for example, the current rating of the objectives should not change in the near term.
Worksheet 9 helps in making a decision on whether to purchase or lease a vehicle. The agreed upon purchase price for the vehicle is $22,500 and the down payment is $6750 which is 30% of the total cost. Similarly, the total loan repayment is $20400 and the opportunity cost of 10% of the down payment is $675. It is expected that the car will have a market value of $4,300 when all the loan repayments have been made. The total cost of purchasing the car, therefore, is $23,525. However, the same car can be leased. The down payment for the lease is $5000 and the total lease payment is $16,000. The opportunity cost of the down payment is $500 and the end of the lease charges will be $1,100. It is expected that $2,000 will be refunded for the security deposit. The total lease cost will, therefore, be $20,600 implying that leasing the vehicle will save Parker $2,925. Purchasing the car will, however, increase the personal assets and reduce the automobile loans in the balance sheet. However, it will reduce the cash held by Parker by the purchase amount.
Worksheet 11 shows the calculations of the maximum monthly mortgage payment and size which Parker qualifies. Parker’s monthly income of $13,333 gives her an opportunity to access a mortgage of $299,142 which is obtained by conducting a series of computations. The monthly salary is multiplied with 28% of the principal, interest taxes and insurance. An estimate of 15% of the real estate tax and insurance payments amounting to $560 is deducted from $3,733 which was computed earlier. The maximum monthly payment using the 28% of PITI ratio is $3,173. A monthly mortgage payment of a $10,000 with a ten-year mortgage and an interest of 5% yield 106.07. The maximum mortgage level is then obtained by dividing $3,173 by $106.07 and then multiplying the results by $10,000.
A second method of determining the maximum monthly mortgage payment is to use the ability to pay, PITI plus fixed monthly payments ratios. The monthly salary is multiplied by 36% to get $4,800. The current mortgage debt repayments and the estimated real estate tax and insurance payments are then deducted. The maximum monthly loan repayment of $2,380 using the 36% is then obtained. Using a ten year period and an interest rate of 5% we calculate the maximum mortgage level by dividing $2380 by 106.07 and multiplying the figure by 10,000. If parker uses all the cash as shown in the balance sheet to pay for down payment and closing cost for the mortgage using method three, she can access four times the amount which equals to $200,000. Grace Parker will, therefore, qualify for $200,000 as the maximum mortgage level which is the lowest of the amount using the three methods. Such a move will affect her liquid cash and increase the value of her assets and liabilities. Similarly, it will make it possible for her to achieve her objectives. Hover, it will affect her income and savings given that she will be required to make monthly payments which reduce her savings.
References
Brigham, E. F., Ehrhardt, M. C., Nason, R. R., & Gessaroli, J. (2016). Financial Managment: Theory And Practice, Canadian Edition . Nelson Education.
Faulkner, A. E. (2017). Financial literacy education in the United States: Exploring popular personal finance literature. Journal of Librarianship and Information Science , 49 (3), 287-298.
Keown, A. J. (2013). Personal finance . Pearson.
