Jan and Bill Financial Planning Process


Janand Bill Financial Planning Process

Janand Bill Financial Planning Process

Personalfinancial planning should take care of the current financialresponsibilities and anticipate the future financial positions. Thisdetermines the purpose and usefulness of a personal financialplanning. The current performance of Jan and Bill financing isdetermined by the past decisions to take debt. In the same way, thefuture financial performance of their finances will be determined bythe current planning. Therefore, this paper seeks to discuss thestrengths and weaknesses of their planning with a view of assistingJan and Bill make better decisions and goals.

Strengthsand weaknesses

Thefirst strength of the current financial planning for Jan and Bill istheir commitment to payment of debt. Their financial plan recognizesthat they have financial obligations to pay off their debts that haveaccumulated over time. First, they have credit card debt of $5000that should be paid up on a monthly basis, which they are currentlypaying. Secondly, they are paying their car payment of $400 permonth. In addition, they are committed to completing their mortgageby committing $ 1000 to pay on a monthly basis. According to Koh(2012), a good personal financial plan should recognize personaldebts and commit part of regular income towards paying them off. Themonthly payments by Jan and Bill proves their commitment to theirdebts.

Thefist weakness of the couple’s personal financial planning isallocating low figures towards debt payment that could take longer topay up. For instance, to fulfill the credit card debt, they arepaying $200 per month, which is sufficient, even though not largeenough to complete the debt in time. This is because the debt willtake two years and one month to clear, a period that is long. For thecar debt and mortgage, Jan and Bill have not disclosed all theinformation relating to the sum total of these debt amounts.

Themost notable weakness is the absence of a regular income for Jan andBill. They did not indicate or disclose their regular source ofincome, if there is any. If there are regular sources of income, theyneed to disclose them, both for Jan and Bill. The total of the twoincomes is what should be planned to meet their financialregulations. The only amount they have indicated is $4, 000 insavings. According to Gitman et al (2013), a good financial planshould recognize the regular incomes that a person has, that will beused to finance the regular financial responsibilities and setsurplus as savings. Therefore, the savings should not be the mainfinancier of regular payments and debts. Instead, it should beregular incomes.

Fundamentalsteps in the financial planning process

Thefirst step for Jan and Bill is to identify a suitable financialadvisor or planner for their financial planning process. With theidentification of the most appropriate advisor, a person shouldpresent all their financial information and disclose all the incomes,expenditure and obligations (Garman &amp Forgue, 2007).

Thesecond step is to determine the goals of their current and futurefinancial engagements. They should ask themselves about the endresults of their planning process. For instance, the goal could own anew house in a specified number of years, clear credit card debt intwo years or buy a new car. According to Garman and Forgue (2007),the determination of the goals, the financial planning exercise willreveal the framework for setting priorities, especially duringbudgeting.

Thethird step is analyzing their financial status as it relates to theidentified goals. Through the assistance of the financial advisor,Jan and Bill will examine their current finances in terms of incomes,assets, and obligations and determine whether they can sustain theirgoals. This step will help them make decisions on the changes thatthey need to do to achieve the goals. Swart(2004) argues that agood financial planning process should recognize the sources ofincomes that bring personal money into the kitty. This will give themthe extent to which he or she can spend or allocate the income to hisor her financial obligations.

Thefourth step is drawing a set of actions with the help of therecommendations of the financial advisor. The recommendations by theadvisor will be informed by the analysis in the third step, andshould relate to the goals that Jan and Bill want to achieve.Currently, Jan and Bill want to buy a new house and a new car. Theyshould therefore identify the specific actions they will implement inorders to achieve their goals and improve their current financialstatus.

Thefinal step is to implement the actions and recommendations that nowform the financial plan for the two. The implementation will also beaccompanied by regular review of the implementation process (Garman &ampForgue, 2007). This will be done by regularly assessing theirfinancial position through evaluating the amount of their savings,incomes and debts.

Measurablefinancial goals for Jan and Bill Smith

  • Generate income of $4, 000 per month

  • Clear the credit card debt in one year

  • Maintain the total monthly expenses of not more than $2, 200.

  • Increase savings to $10, 000 in one year

  • Buy a new car in two years

  • Buy a new house in ten years

Stepsto achieve these goals

Thefirst step is to get a job or engage in an activity that willgenerate a combined income of $4,000 per month. This will depend onthe availability of any other income stream, which they have notdisclosed.

Thesecond step is to increase the monthly credit card payment to $400from the current $200. This will help them clear the credit card inone year.

Thethird step is to delay the buying of a new car. This is because theircurrent financial status does not indicate their ability to buy a carwithout a possibility of entering into more debt. This is asdetermined by the analysis in the third step above.

Thefourth step is to start allocating at least $1,000 to their savingsper month. This is possible because they will have $5,000 in income.With a monthly debt payment of $1,800 per month, they will haveresidue of $2,200 to cater for expenses after deduction of $1000savings shown as Income ($5,000) – Expenses ($2,200) – Debts($1,800) = Savings ($1000).

Thefourth step is to sell their old car after two years and then addmoney from their savings kitty and buy a new car. This will avoidfurther credit by buying the car in cash.

Thefifth step is to sell their current home after ten years and add upmoney from their savings and buy a new house. In a similar way, thiswill avoid future debts in terms of mortgages, especially as theyapproach old age.

Decisionsand Factors on Car and Home Purchase

Thedecision about the car and the house is to buy them in cash and notdebt as described in steps four and five above. The fundamentalreason why they should not purchase a new car and a new house isbecause their financial inability to buy as stated in step threeabove. Another reason is because they should avoid further debt thatmay plunge them into bankruptcy. The two factors to consider are thecost of the purchases and the time value of money. Buying the car andhouse in cash in the future will be cheaper than buying in debt now,when compared in real terms as inflation will affect the value of thecurrency.

TwoDifferent Purchasing Methods

Thefirst and the most appropriate method for the couple to buy a new caris cash purchase. It is a challenging method because Jan and Billmight not have the cash in a lump sum. However, with proper planningoutlined above, they will have accumulated the amount of savings andthe income from the sales of the car. The second method is hirepurchase. Under this method, they will pay an affordable deposit toget possession of the car, and use it at will. However, the ownershipof the automobile will remain with the seller until they pay the lastmonthly installment (Garman &amp Forgue, 2007). Compared with cashmethod, the price of the car under hire purchase is expensive.Moreover, hire purchase will expose Jan and Bill into more debts.


Thecurrent financial status of Jan and Bill is not sensitive to theirfinancial future since it accumulates personal debts. While Jan andBill have unpaid personal debts, they are intending to enter intoeven more debt by purchasing non-priority utility items. To bettertheir financial status, Jan and Bill should increase their monthlyincome, implement the recommendations given, pay their debts and getcommitted to higher savings. This will help them buy a new car andnew home through savings and disposing of the old ones. This way, Janand Bill will achieve their financial goals without entering intofurther debts.


Garman,T. E., &amp Forgue, R. (2007). PersonalFinance.Stamford:Cengage Learning

Gitman,L., Joehnk, M., &amp Billingsley, R. (2013). PersonalFinancial Planning.Stamford:Cengage Learning

Koh,B. (2012). PersonalFinancial Planning. UpperSaddle River, New Jersey: FT Press

Swart,N. (2004). PersonalFinancial Management.Claremont: Juta and Company Ltd.