Last Updated 06 Jul 2020

Planning Personal Finances

Category Finance
Essay type Personal
Words 2785 (11 pages)
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Today’s world is faced with daunting challenge of global economic crisis that pose a threat to individuals in regard to their financial plans. Evidently, there is need for the individuals to plan for their finances beforehand to achieve their personal financial goals. This is because, people always incur expenses that they do not foresee though they could be remotely or explicitly aware that something unforeseen may occur which will call for more funds.

Therefore, to plan well for one’s financial prowess, individuals need to understand various ways to do so including investing, insurance, taxation and many other ways of saving and generating more money for future use. In this regard, this paper seek to explain how one can plan his personal finances like Taxation, Investment and Life cover in relation to factors influencing financial planning such as endowment insurance policy, units in a unit trust, investment trust company shares, term life assurance policy, pension plans, Government and corporate bonds, occupational pension schemes and investment bonds.

Planning Personal Finance Personal Finance refers to the amounts of money that one can have at his/her disposal for investment or spending. Every single penny that one has is needed to be planned for and properly utilized and spent. For one to succeed, he/she must determine his/her goals in life in relation to the funds that could be to his/her disposal and investment. In this regard, determining goals will help one to express his/her desires more explicitly, clearly and in a way that can be converted easily into numbers (Andresen, 2008).

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To change one’s words into Numbers, helps him/her to convert his/her goal statements into a string of numerical numbers that describes what is happening or what he/she wants to happen in his/her financial life Spending or utilization of this money can range from investment, life cover, taxation and many other ways that may lead to proper utilization of one’s resources (Alexander, 2006; Bernard and Ralph, 2003; Dlabay, 2004; Harv, 2005). World over, people want to make more money and to do so, they need some money as capital or start ups.

It is apparent that even with lots of money, if there is no plan by the owners, one can do nothing to create more wealth and that is why some individuals at some point in their life could possess or get lots of money but after a while they turn back to poverty. This can only be attributed to lack of proper planning for their finances, poor investment decisions or improper allocation of funds. A nation would always remain in dire poverty simply because of lack of proper planning, misappropriation of public funds or because of corruption in various levels of government (Investment guide, 2002).

Therefore, there is dire need to empower every individual about proper planning for their personal finances which will further go to the development of the individuals’ lives and to the whole nation in general. Life cover This is a financial product that is available to protect one and his/her family in the event of unforeseen unfortunate circumstances by offering financial stability to his/her family after his/her death (Alexander, 2006; Harv, 2005). In return for contributing a regular payment to an insurance/assurance firm, this life insurance policy will pay out some amount of money upon the holder’s death to his family or dependants.

This money may be used to cover any financial expenses for instance, funeral expenses, mortgage repayments, outstanding loans or any other debts one leaves behind or for the well being of the deceased’s dependants. According to Davidson (2007) in his article “Life assurance policy” published on www. moneyoutlet. co. uk, Life cover can also be used as a method of saving. Factors that may influence life cover would include Endowment insurance policy, Units in a unit trust (Mutual Fund), Investment trust company shares, Term life assurance policy, Pension plans, Government and corporate bonds and Occupational pension schemes among others.

Endowment insurance policy according to Andresen (2008), is a type of life insurance that is payable to the insured if he/she is still living on the policy's maturity date, or to a beneficiary if he passes on before the policy’s maturity date. Generally, Endowment policy is good for young people because it provides them an opportunity not only to cover themselves for risk but also provides financial independence to them in old age by way of maturity benefit. People will have to decide whether to invest in this policy or not depending on the need. Units in a Unit trust which according to www. investopedia.

com, is an investment body made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. One advantage of this is that it gives small investors access to professionally managed, diversified equities, bonds and other securities, which would be quite difficult to create with a small amount of capital at their disposal. This trust is generally good for those investors that do not have lots of money to invest hence small investors are brought together and their resources for financial companionship.

A person has to decide as to whether to take a life cover or invest in a mutual fund based on what he will consider as more economical and useful. Investment trust company shares refers to the large amount of money invested in the shares of a company which employs professional managers to invest its assets, mainly in ordinary shares that are traded in the stock exchange market. In most cases the portfolio costs more than the market value of the trust and the trust shares are described as being at a discount, and the opposite is known as a premium (Andresen, 2008).

This is usually recommended to those individuals that have got a lot of money to invest in shares and those that require professional management. A person will be required to make a proper decision as to whether to put his money in the investment trust company shares or in acquiring a life cover depending on what he will consider best for him. Term life assurance policy which according to Davidson (2007), refers defines it as a policy with a set duration limit on the coverage period once the policy has expired, it is up to the policy owner to decide as to whether to renew the policy or to let the coverage end.

This policy is recommended to those individuals that frequently travel or those whose lives are threatened may be by the kind of business that they do. A person has to decide whether to take a life cover or to take a term life assurance policy depending on the above or related factors. A Pension Plan is a type of retirement plan, which is usually tax exempt, whereby an employer makes contributions toward a pool of funds set aside for an employee's future benefit. These funds are then invested on the employee's behalf hence enable him/her receive benefits upon retirement (Jeff, 2006; Lang, 1993).

This plan is recommended to those individuals that are employed and are earning relatively substantial amounts of money that can cover virtually their monthly expenses. Therefore, person has to decide whether to put his money in pension plans to earn him benefits in future or in the life cover for his dependants. Government and corporate bonds is ideally the lending of one’s money to a government or a company. In return for lending money one is paid a fixed rate of interest over an agreed and set period of time.

At bond maturity, the investor’s money is repaid with the interest earned. This bond is recommended to those individuals that have lots of money because they always involve lending large amount of money and fetches a lot in form of interests. In light of this a person will have to decide as to whether to put his/her money in the bond market or in life. An occupational pension scheme is a declaration by the employer where an employer agrees to give his employees a pension when they retire.

By not joining, an employee could be missing out on tax relief as well as contributions towards his/her pension and therefore he/she will not benefit after his/her retirement. This is recommended to all the employees of different organizations so as to ensure that at their retirement, they will be earning some income. Managed/Investment bonds involves large organizations like corporations and local governments as they borrow money occasionally from individuals or financial institutions. They pay back interest for the privilege of borrowing.

This investment bond is recommended to those financial institutions and individuals with a lot of money to invest so as to earn interests. One has to decide either to lend his/her money inform of managed bonds or to invest in life cover. Investment In financial terms, investment is the purchase of financial products or other items of value with an expectation of favorable future returns (Jack R. et al. , 2007; Jeff, 2006; William, 2006). In general terms, investment means the use money in the hope of making more money in form of profits.

Factors that may influence investment would include Endowment insurance policy, Units in a unit trust (Mutual Fund), Investment trust company shares, Term life assurance policy, Pension plans, Government and corporate bonds and Occupational pension schemes among others. With endowment insurance policy, some people will not want to invest in any other form of investment because this policy will cover the expenses of his beneficiaries once he dies while others will not be deterred from investment by having this policy (Andresen, 2008).

This policy is recommended to those individuals that do not need to invest in other sectors of the economy. In mutual Fund small investors are encouraged to put their little money in a pool of funds contributed by other small investors and therefore they are able to start larger businesses that an individual couldn’t manage to start with his/her meager resources. In the investment trust company shares, if one invests in it he/she may not need to invest in other sectors of the economy should he be satisfied by both interest that they earn and the expertise of management by the company managers.

This fund is recommended to those individuals that are well endowed with money and wants to be associated with well performing companies. Term life assurance policy generally does not generate any income in form of interest and therefore, it is recommended to those individuals that are well satisfied with money and therefore only interested in their lives and those of their families. Otherwise, it is recommended that those who are still struggling to get money invest in other profitable investments.

Pension Plans involves people contributing to the employer’s scheme so as to earn it after retirement in installments. This is recommended to those individuals that do not have other investment and requires to be exempted from tax though it does not generate any interests. Otherwise those with other investments will want the money so as to increase their investments for more profit generation. Government and corporate bonds generates more interest to those that invest more and therefore they are encouraged to those individuals who have more money at their disposal for investments (Vickie, 2004).

It is a very good form of investment though it discourages those investors that have little amounts of money. Occupational pension schemes are good for those individuals that need to save pert of their money for future use. However some employers may only distribute the amount contributed by the employee into a number of months without adding any of the generated interest to it or rather adds very little interest to it. Therefore, besides investing in these schemes, individuals are encouraged to make other investments that could guarantee them more funds for use in future.

Managed bonds could be very good especially those individuals that have a lot of money that they can lend out. They are encouraged to those individuals that can provide long term investments. Taxation According to the Investment guide (2002), taxation is the imposition or payment of tax to the authorized bodies. In a given nation, there are methods of collecting and paying tax for the purpose service provision to the rest of the citizens in the country. One must understand personal finance planning so as to determine how much tax he/she is likely to incur in the process of his/her investment or spending.

In endowment insurance policy, there is usually no form of taxation on this policy hence many people will opt to invest in it so as to earn more profits that are realized for not paying any tax (Andresen, 2008). Some other people may not be attracted by the tax concession as they are not afraid of paying tax and therefore they can use this money to invest it in other forms. Units in a Unit trust (Mutual Fund) attracts taxation and is charged and distributed among all the investors in that fund.

In this regard, many people will be attracted by the tax distribution among the investors. In investment trust company shares, different persons will be influenced to either invest in the investment trust company shares because of the expertise and management prowess in the company or in other sectors/investment if the company is associated with bad reputation. Such investments calls for taxation especially when buying and selling. This is recommended to those individuals that always need to be associated with well performing companies

Term life assurance policy does not attracts any form of taxation hence many people who are endowed with funds will not shy away from investing in this policy because they will benefit from tax relief that is associated by this policy. It is recommended to those individuals with large investments in other sectors of the economy and those that have many dependants behind him. Pension Plans do not attract any form of taxation therefore individuals in their process of personal finance planning are likely to invest in them so as to reap more benefits and interest in future (Larry and Smith, 2002).

It is recommended to those individuals that earn little amounts of money and those that cannot afford to make other investment that may guarantee them good life in future. Government and corporate bonds do not attract any form of taxation or even if they do, the tax is covered by the interests that are realized from lent money. Therefore persons with endowment of funds will always want to invest in the government or corporate bonds so as to earn these interests.

This is recommended to those individuals that that wants to be associated with the government or major companies. Occupational pension schemes attracts some tax which is paid by the pension scheme holders but this tax is always attractive to the investors/persons because it is distributed among all the people in the scheme hence lowering the taxation incurred by each individual. Therefore, those are recommended to those persons that have little amounts of money to save or those that wants to support the schemes to grow. Conclusion

It is generally very clear that Endowment insurance policy, Units in a unit trust (Mutual Fund), investment trust company shares, term life assurance policy, pension plans, Government and corporate bonds and occupational pension schemes do affect the general planning of personal finances especially as far as Investing, Taxation and Life cover is concerned. One has to consider all these factors so as to make informed choices in order to achieve financial goals. References Andresen, P. (2008), Endowment insurance policy, available at http://www. thinkplaninvest.

com/2009/04/what-is-endowment-insurance-plan, retrieved on 22 July, 2009 Alexander, W. (2006), Fundamentals of Personal Financial Planning, University of California, available at http:// learn. uci. edu Bernard J. W. ; Ralph R. F. (2003), Personal Finance, New York: McGraw-Hill Inc. Dlabay, P. (2004), Introduction to Personal Finance: New York, McGraw Hill. Davidson, T. (2007), Introduction to life insurance: available at www. moneyoutlet. co. uk, retrieved on 22 July, 2009. Harv, E. (2005), Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth: New York, Harper Collins.

Investment guide, (2002), Investment trust company shares: available at http://www. investmentguide. co. uk/ inveshar. htm, retrieved July 23 2002. Jack R. et al. (2007), Personal Finance: New York, McGraw Hill Jeff, M. (2006. ), Personal Finance with Financial Planning: New Jersey, Prentice Hall. Lang, R. L. (1993). Personal Finance Strategy: New York: McGraw-Hill. Larry, C. ; Smith L. (2002), Keys to Personal Financial Planning: New York, Barron’s Educational Series, Inc. Vickie, L. B. (2004). Personal Finance: Planning and Implementing Your Financial Goals: New York, John Wiley ; Sons. William, N. G. (2006). Investment Theory In

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