FACULTY OF BUSINESS, ECONOMICS AND
UNIVERSITY MALAYSIA SABAH (UMS)
BD32803 PERSONAL FINANCE (SECTION 2)
SEMESTER 1, 2018/2019
PREPARED TO :SIR NELSON LAJUNI
PREPARED BY :
NAME NO MATRIC
HASRINA BINTI MAPPENDRE BB16110182
NURMARDIANNA BINTI MOHD JOHARI BB16110114
JOHNAISAH JOHN BB16110689
AMIRAH BINTI NORAZMI BB16160862
Chapter 1 :
1.0 Personal Financial Planning Process :
Since Zika plan to retire at age 55 years old, she then needs to properly to plan her
financial retirement planning in order to get a maximize consideration for her need in the
future. Personal financial planning is the process of estimating and manage the money for
an individuals in term of investment, budgeting and also for retirement. One of the
important of this financial planning is Zika able to avoid from involved with financial
problems and may help Zika in order to she achieve her financial goals. She then able to
achieve what her lifestyle goals after her retire at age of 55 years old.
1.1 Evaluate Zika Financial Health :
The first step that Zika needs to consider in order to planning for her retirement is Zika
needs to examine her current financial situation. The understanding of the Zika own
financial situation will help Zika to more realistic and understand clearly about her goals.
Based on the case study states that during 33 years old then plan to retire at 55 years old,
the earning of Zika is RM 72,000 per annum with an expected of her salary will grow at 6%
per annum. So the calculated amount in the future of Zika earning after 22 years is RM259
454.70. While for the expenses, the total of Zika expenses per year is RM505 400.
FV = PV(1+i)^n
FV = RM72 000(1+6%)^(22)
FV = RM259 454.70
Expenses of Zika : RM
1. Investment Linked Policy 200 000
2. Critical Illness 100 000
3. Payment per monthly of critical illness (RM200*12month) 2400
4. Personal accident insurance 200 000
5. Monthly premium of personal accident insurance
TOTAL EXPENSES RM505 400
To see clearly about the current financial health, Zika need to know about her current
net worth. Zika can calculate her current net worth by minus her total of assets and the
total of her liabilities or spending on expenses. Assets is defined as simply on what Zika own
by herself while the liabilities is the value of what Zika owe such as the bills, the taxes, the
premium of insurance and others.
1.2 Define Zika Financial Goals :
The next step is Zika needs to set her financial retirement planning so she can see the
actual direction of her financial retirement plan. In this steps, Zika needs to define her goals
in specific, measurable, attainable, realistic and time-based which known as (SMART).
Others than that, Zika also need to differentiate between the needs and wants. Based on
the case study, one of Zika financial goals is to traveling one times per year where she will
use as 10% from her income for travel. Zika also has a plan to purchase a new house this
year using her eligible amount of her EPF which is has a current balance RM 190 000. In
order to fund her retirement fund, Zika already has their own strategies to get benefits from
the return of investment which is 5% and 9.5% for post-retirement and pre -retirement.
1.3 Develop aplan of action :
Based on case study of Zika, in order to get benefits from the dividend that she received
1.5% for every quarter from REIT and also 3.5% interest from Fixed deposit that she
received compounded monthly. This two interest and dividend are able to increase the
amount of money in the future after her retirement. In term of protection, Zika has
investment-linked policy with the total sum of RM200 000 with an accelerated of critical
illness of RM100 000 that she need to pay for every month of RM200. This investment-
linked policy and personal accident insurance
To makes sure Zika are able to achieve to meet his goals, she are required to has
others alternatives and strategies to achieve her goals. Zika should be flexibility on what are
happen in the future since she cant predict the future as a the plan that she sets may be
changed and some of unexpected thing such as Zika may be expelled from her current work.
This unpredictable changes will give an trouble for the calculation on Future value of
1.4 Implement Zika Plan :
In this point, Zika should be identified with the options that she has for achieve her
goals and having her own strategies. Then, Zika need to look carefully on her financial
current situation and predict the future in order to maintain her goals. In other words, Zika
should to use her financial plan as aroad map for she to achieve her goals. The process of
implementation will be different with others because everyone has their own financial goals,
So Zika also need to create aschedule of discrete tasks to accomplish over aweek.
1.5 Review progress, reevaluate and revise Zika plan :
The last step for Zika in her financial retirement plan is to review the progress,
reevaluate and revise her plan because this is one of the important step. In this last step will
able to help Zika to achieve her financial retirement goals. Zika must reevaluate her plan
strategies because maybe her first strategies are not able to achieve her objective and goals.
Since Zika cannot predict the future, she also need to more flexible depends on financial
situation where there will unpredictable and unplanned of income and expenses that will
lead Zika to revise again her financial retirement plan as time may change to time.
CHAPTER 2 :RETIREMENT PLANNING
Zika should emphasis on the issue and the importance of retirement planning. Also,
considered on the impact of inflation on retirement. The retirement planning needs analysis
on financial objectives and analysis the current asset, liabilities, and retirement expenses.
Retirement planning could help to achieve goals in life.
2.1 Determine the pre-retirement income of Zika .
i) Pre-retirement income using current salary
Zika aged 33 and plans to retire at the age of 55. Zika current annual income is RM 72 000
Per annum and she expects her salary to increase annually on rate of 6%.
N=55-33=22, i=6%, PV= 72,000, FV= 259, 454.69
FV= PV im
= 72,000 th
= 259, 454.69
ii) Pre-retirement income using expenses level
Investment liked policy 200,000 4% 473,983.76
Premium of personal
(250 ? 12 month)
3,000 4% 7,109.76
200,000 4% 473,983.76
Critical Illness 100,000 4% 236,991.88
Payment of Critical Illness
(200 ? 12 month)
2,400 4% 5,687.81
2.2 Calculate Zika sdesired retirement income .
To fund her retirement, Zika need 2/3 of her last draw salary at age 55 with average annual
inflation of 4%. Zika current income is RM72, 000 Per annum.
Pre-retirement income: RM259, 454.69 ? 67%
Desired retirement income:
= pre-retirement income ? 67%
= RM259, 454.69 ? 67%
= RM 173,834.64
2.3 Establish the lump sum needed by Zika during her retirement years
? Current pre-retirement income = RM RM259, 454.69
? Percentage of current income desired at retirement = 67%
? The average annual inflation rate before & after retirement = 4%
? The average interest rate on investment after retirement = 9.5%
i.Inflation adjusted interest rate
= (1 + investment interest rate)/(1 + inflation rate) 1
= [(1.095)/(1.04)] 1? 100 = 5.29%
ii.Established the desired retirement income (using income replacement ratio method)
= = RM259, 454.69 ? 67% = RM 173,834.64
iii.Calculate the capital needed for comfortable retirement
= RM 173,834.64 [
th? ]? (1.0529)
2.4 Assess Zika scurrent retirement savings
Zika has another 22 years to retirement. She has earn RM72,000 in bank deposit and she
need 2/3 to fund her retirement and EPF balance is RM190,000.
FV = PV im
Bank Deposits :72,000 ihth =259, 454.69
Fund retirement : =1,584,000
EPF Account Balances : =190,000
TOTAL = RM2, 033, 454.69
2.5 Match Zika sretirement savings against the lump sum capital needed.
Zika current retirement savings is RM2,033,454.69 since the capital amount she will need is
RM1,350,013.19. She retirement savings exceeds compared to the capital sum of
RM1,350,013.19. Therefore, she will have the required level of funding his retirement.
2.6 Eliminate Zika sretirement shortfall .
Zika retirement planning, there is no concern about savings for her retirement
because her retirement savings exceeds compared to the capital sum, so she will has
enough funding for her retirement. Besides that, Zika has an enough long-term growth of
income because the expected rate is higher and she could save more money before she
retires. In addition, Zika expenses are not high which of RM1, 197,756.97 and she can cover
the expenses by her income and asset that she has. Therefore, Zika could proceed with her
plans to retire at age 55 because she has higher income and can make a higher saving to
fund her retirement.
Chapter 3 :Zika sPersonal Balance Sheet & Net Worth
Personal Balance Sheet
Assets RM Liabilities RM
Current Assets 105,000 Secured Loans
House Loan 0
Monetary Assets Car Loan 0
Fixed Deposits 26,645
Investment Education Loan 0
EPF Balance 190,000 Personal Loan 0
Investment-linked policy 200,000 Credit Card Loan 0
Personal Accident Insurance 200,000
Investment in Real
114,009 Other Payables
Loan from family/friends 0
Other Assets Other Dues 0
Jewelry 0 Net Worth
Total Assets 835,654 Assets-Liabilities 835,654
Fixed deposits are one of a financial instrument that have been provided by a bank to a
investors with a higher rate of interest than a regular savings account. Based on the case
study, Zika have a fixed deposit which is RM25, 000 that pays interest of 3.5% per annum
compounded monthly. Therefore the calculation as below:
FV= PV (1+ m
FV= RM25,000 (1 + hth
= RM25,000 (1.0658)
The value of Zika s fixed deposit after 22 years will be RM26,645, after it has been
compounded monthly per annum with the rate interests of 3.5%.
Real Estate Investment (REIT)
Based on the case study, Zika s have a an assets in Real Estate Investment Trust (REIT)
with amount of RM105,000 and she will receive a dividend that pays 1.5% every quarter.
REIT is one if a company owning or finance income-producing real estate in a range of
property sectors. So the calculation for Zika sinvestment in REIT is as below:
FV= PV (1+ m
FV= RM105,000 (1+ hth
= RM105,000 (1.0858)
Therefore, the value of Zika sinvestment in REIT will be RM114,009 after 22 years after it
has been compounded quarterly.
Net worth can be defines as a summary that provides a snap shot showing a financial
situations at a certain point in time. Generally, the formula to find the net worth is the
assets minus the liabilities. Assets define as something that you own where there are your
possessions even if you owe money on them while liabilities define as something that you
owe where it is adebt that must be repay in the future. By calculate the net worth, we can
know how much money you have left after the everything you owe is converted into acash
and used to pay-off the debt. Based on the balance sheet above, Zika s total assets is
RM835,654 and Zika does not have any liabilities, so the net worth is RM835,654.
Net worth= Assets Liabilities
= RM835,654 RM0
CHAPTER 4 ANALYZE WHERE THE MONEY COMES FROM AND WHERE IT GOES
USING INCOME STATEMENT
Personal Income Statement
Total revenue 859680
Investment linked policy 200000
Critical Illness 100000
Payment per monthly of critical illness 2400
Personal accident insurance 200000
Monthly premium of personal accident
Total expenses 505400
Net income 354280
From the income statement above, Zika earn RM72000 per annum. So, she decides to
retirement on 55 years. Which is RM72000 ?22 years and she get the income before the
drawn is RM1584000 that she still working until her retirement. Before that, Zika need to
drawn her money 2 per 3 before retirement. So, the total income that she have afer the
retirement is RM859680.
After Zika has listed all her sources of income, she has to make a list of all her
expenses during the month. She has to go through her debit and credit card history for the
month and relate each withdrawal or charge to the expense that it relates to. She only has
to list the ones where the good or service was consumed for her life. Her total expenses for
the investment is RM200000. She also pay for the year for critical illness which is 100000.
And she paying itfor amonth is RM200. Zika was paying for her personal accident insurance
for ayear. The total for the personal insurance is RM200000 and she paying amonth RM250.
After the total revenue minus the all expenses that Zika paying and investment, the
total net income that she have after her retirement is RM354280.
CHAPTER 5 RATIOS TO IDENTIFY FINANCIAL STRENGTHS AND WEAKNESSES
1. Saving ratio
131645 = 0.15
The savings ratio is expressed as a percentage and is computed by dividing average
household savings by average household disposable income. So in essence, Zika savings
ratio is how much money her save on an annual basis as apercentage of income. For Zika,
0.15 saving ratio from her income.
2. Liquidity ratio
Zika has RM105000 in cash assets and monthly expenses of RM72000, their liquidity ratio is
3.0. The higher the number, the better the ratio because it means that more months of
expenses can be paid from acash reserve.
1. Galen Herbst De Cortina. The 6 Step Financial Planning Process -Do It Like The Pros.