Assignment:
Please read the assignment overview. This is an individual assignment. Similar work, spreadsheets, or other information will be treated as an academic offence.
Review assignment 1 instructions. This is part 2 for the same client situation you used for part 1 of this assignment. If necessary, you may go back and modify your client situation. This is a fictional client. However, your written work must reflect a collaborative process between you and your client that has resulted in two realistic goals being set. Use phrases such as "as we discussed" to show this collaboration.
Fully describe each goal and determine a monthly amount in the cash flow that will achieve the goals. Make a general assessment about whether the goals are reasonable without giving specific recommendations about changing cash flow items. Later, in assignment, you will present specific suggestions for reducing other expenses to accommodate these goals. Do not make specific suggestions in this assignment about how to achieve these goals. The emphasis in assignment 2 is on fully describing the goal.
Pay attention to the following requirements:
1. You must include one savings goal and one debt reduction goal. This might not seem logical to be saving money when the client has a lot of debt. However, it is a requirement for this assignment. Focus on short - medium term goals, ie less than 5 years. Examples of goals will be to repay certain debts, establish an emergency fund, save to buy a vehicle, save to return to school, save for a wedding, etc.
2. These goals are to be CONCURRENT, not one after the other.After completion of the shorter goal, you will meet to reassess the next period, but for now, you are working only with the upcoming period when both goals must be in the cash flow.
3. Choose goals that make a significant difference to the client's financial position for the future. Study their current situation, and imagine a discussion with the client that results in two goals to improve their situation. Examples of goals that do not make a significant difference to the client's financial situation are:a) pay off a debt in 36 months when the debt was already scheduled to be paid back in 40 months, b) increase an emergency fund from covering 3 months expenses to 3.5 expenses, c) go on vacation in 6 months, or d) any goal that requires only tiny adjustments to current lifestyle to achieve. This step requires careful consideration of their financial situation from assignment 1.
4. The goals should require some commitment and effort from the client, and an adjustment to their current spending in order to achieve the goals. Do not use existing assets and savings to achieve the goals. Goals are to be achieved with a monthly amount that you will calculate. There will be no moving assets around for this assignment.
5. Avoid long term goals that might be problematic. For example, students often want the client to save a 5% down payment for a house. If pursuing this type of goal, you need to consider closing costs, which can be substantial - sometimes more than the 5% downpayment - and cash flow after the house purchase (mortgage payment, property tax, insurance, maintenance, utilities, and purchasing necessary interior and exterior household items). In other words, pick a goal that you can properly analyze and see through to completion within the current circumstances. There is no point helping a client save a down payment for a house they cannot afford due to closing costs, or ongoing costs of ownership.
6. Do not assume future increases in income will solve problems. You are dealing with a fixed income amount for this assignment.
The goals should rise logically from the current financial situation and represent a way to improve the client'sfinancial situation. Be creative and think about the big picture for the client. Use your knowledge of financial management to guide your client. Explain why the client is motivated to achieve this goal. Make it a convincing personal reason, not an advisor reason. Evidence of the client motivation is important. Remember, we are helping clients define the goals that matter to them, not convince them of the goals we think they should have.
Write your summary TO the client, not about the client. Use second person (you), not third person (he) in your writing. You must communicate clearly and directly to the client.
Your goals must clearly contain the following elements:
1. What is the goal? Fully describe in words, without reference to cost.
2. Why does the client want to achieve this goal? What is the benefit to him? Make sure this is a personal reason of the client's, not you explaining why the goal is a good idea. Saving interest expense is not usually a powerful personal motive.
3. How much will it cost to achieve this goal? If the goal is to repay a debt, state the amount of the debt currently outstanding.
4. Why this amount? Explain how you and the client decided together why this is the amount required to achieve their goal. For example, do not set a goal to buy a car costing $18,000 if it turns out the client would be just as happy with a car that cost $8,000. What's the difference? Why does the client want the one he wants? Why is the other not suitable?
5. When does the client want to achieve the goal?
6. Why this time frame? Explain how you and the client decided together on this time frame. Why is the client motivated to achieve the goal within this time frame? If he is just as happy with a longer time frame, he won't be motivated to accomplish the one you chose. Give a reason why the client cares about the time frame.
7. How much per month needs to be saved or paid in order to achieve the goal in the time frame? TVM calculation is mandatory, and shown in the appendix. Do not put calculations in your document text. Put calculations in the appendix, for reference only.
N=
i=
PV=
PMT=
FV= .
Assume rate of return, keeping in mind it is a short term goal. N, PV, and FV are defined in the goal.
In your appendix, show your TVM calculation, solving for monthly payment. Later, in assignment, build these amounts into the revised cash flow. This shows how much the client will need to reduce his current lifestyle expenses in order to achieve the goals.
8. Does the goal appear to be realistic? Don't make specific recommendations yet, but consider how large an impact it will be for the client to achieve this goal. Is the client motivated enough to make the necessary lifestyle changes? Talk about this. Consider what % of cash flow will be required to achieve these two goals. Does he have enough discretionary expenses to be able to afford these goals?If the goal is not realistic, "talk" with your client until you have goals that are realistic.
NOTE: you will not be allowed to have clients move to cheaper places, or take in a room mate to solve their need to save or pay more debt. Also, you will not change anything else that is very difficult to change, or important to the client. For example, do not recommend giving up pets, children, or strong personal habits like smoking. It is very unrealistic to expect clients to change these lifestyle preferences. That said, it depends on motivation. Will I give up my pets and smoking in order to pay off my student loan faster? Probably not. Will I give up my pets and smoking in order to afford the medication my child needs in order to live? Yes. Be realistic about your client goals and likely course of action.
Your report presents the final goals you have helped the client to clarify. Of course, there might have been many alternatives discussed before you settled together on this goal. Keep your final summary simple and clear. Do not complicate it with analysis of all the options. Go with the final goal you established together.
Write to client summarizing goals. These goals are to be written as you would write to a client to make a record of your mutual discussion about these goals. You are providing a summary of your discussion that has led to fully defining these goals. It should cover all areas noted above, but otherwise be brief. For each goal, usually a paragraph of approximately 150 words is long enough to fully describe each goal. Use this as a loose guideline only. The main thing is that all the questions above, including all questions of motivation for the goal, the goal amount, and timing of the goal, are answered by your description.
Describe each goal separately. It's easier to read and understand. Do not put them both in one paragraph. Do not alternate between them in your discussion. Outline one goal fully. Then, outline the second goal fully.