BBMF2113 PERSONAL FINANCIAL PLANNING

2RFI/RBF JULY 2022

Tutorial 1: Financial Planning Overview

1. People are commonly overwhelmed by the many influences on personal financial

decisions. What are the factors affecting financial planning?

Personal values, household situation, age, income level, marital status, employment
situation, and economic conditions.

2. Explain why it is important to set realistically attainable financial goals. Select one of your
personal financial goals and develop a brief financial plan for achieving it.
To maintain and improve standard of living as we are able to use and control our financial
resources more efficiently.
For example, we need to control spending to build an emergency fund.

3. Discuss why Financial Planning is important today more so than 20 years ago.

Inflation secured. With careful financial preparation, you'll be better prepared to deal with growing inflation
in the coming years as your business gets older.

Income management which helps you figure out how much money you'll need for taxes and how much
money you'll be able to save from the specified amount.

4. What are the main components of personal financial planning?

- Cash flows management
- Risk management and insurance planning
- Tax planning
- Investment planning
- Children education planning
- Retirement planning
- Estate planning
5. What types of risks are commonly associated with personal financial decisions? How can these
risks be evaluated and minimized to reduce personal and financial difficulties?
Income risk such as death, disability and therefore unable to work. To minimize it, having
numerous alternative income sources is important. Also, insurance can be purchased to help with
financial hardships if death or disability happened.
Investment risk such as depreciation, inflation, or not saving enough to achieve your financial
objectives. To avoid the risk, you must make sure that you have sufficient money for your
financial goal. Also, you need to learn about the risk and return you can afford and the features of
each investment type to help you select the best investment objectives.

6. Juliana is trying to decide whether to keep her money in a savings account or in a mutual fund.
What would you tell her to help her analyze her decision?

A saving account is established and maintained at a banking institution, so it is risk free, and
lower return. A mutual fund is set up and maintained through an investment firm, it is slightly
higher risk and higher return if compared with saving account.

In conclusion, I will suggest Juliana invest her money in a mutual fund although the risks involve
in mutual fund are greater than a saving account, the returns are far greater towards for a long
term goals such as setting money aside for retirement.
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7. Explain why borrowers benefit more than lenders in times of high inflation.

Lenders are hurt by unanticipated inflation because the money they get paid back has less
purchasing power than the money they loaned out. Borrowers benefit from unanticipated inflation
because the money they pay back is worth less than the money they borrowed.

8. Bank Negara Malaysia on 11th May 2022 increased the Overnight Policy Rate (OPR) by 25
basis points, from 1.75% to 2%. Discuss the impact of this monetary policy changes in relation
to personal financial planning.
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2RFI/RBF JULY 2022

Tutorial 2: Financial Statements and Time Value of Money

JUNE NG
STATEMENT OF NET WORTH AS AT 31 DECEMBER 2021
ASSETS RM LIABILITIES / NET WORTH RM

Cash/ Cash Equivalents Current Liabilities

Savings account 40,000 Credit card 10,000
Insurance cash value 10,000
Long-Term Liabilities
Investment Assets Mortgage 600,000
Apartment 350,000 Car loan 15,000

Personal-Use Assets Net Worth ?

House 400,000
Car 80,000

TOTAL ASSETS 880,000 TOTAL LIABILITIES / N.W. 880,000

JUNE NG
CASH FLOW STATEMENT FOR THE YEAR ENDING 31 DECEMBER 2021

RM RM
INFLOWS
Net Salary (net of Employee’s EPF Contribution & Tax) 132,000
Net Rental Income 12,000
TOTAL INFLOWS 144,000

FIXED OUTFLOWS
Life Insurance Premiums 6,000
Mortgage Payments 36,000
Car Loans Repayments 18,000
Maid’s Salary 12,000
Sub Total 72,000

VARIABLE OUTFLOWS
Food/ Groceries 25,000
Utilities 10,000
Children Education 12,000
Family Vacation 10,000
Others i.e. gifts, celebrations, etc 8,000
Sub Total 65,000
TOTAL OUTFLOWS 137,000

NET CASH FLOW 7,000

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1. Based on the financial statements, compute June’s:

a. Basic Liquidity Ratio

b. Debt-to-Asset Ratio

c. Debt Service Ratio

d. Non-Mortgage Debt Service Ratio

e. Liquid-Assets-to-Net Worth Ratio

f. Savings Ratio

g. Net Investment Assets to Net Worth Ratio

Comment on her ratios.

2. Lucas wants to know how much to invest now, if the annual interest rate is 7%
compounded on a monthly basis. He wants to have RM50,000 in 10 years time.

3. How long does it take for RM5,000 to grow into RM6,724.44 at 10% compounded
quarterly?

4. What interest rate is implied if you borrow RM12,500 and repay RM21,362.24 in three years
with monthly compounding?

5. Kiki has just been paid RM400,000 by an insurer and intends to place the money in a bond
fund with an expected return of 6% a year. How long will it take for the sum to be RM 1
million?
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6. Patrick plans to place RM75,000 in a fixed deposit account with an interest rate of 4 % a year.
The FD pays interest every quarter and the amount is re-deposited to earn interest. He wants
to know how much money is available after 10 years.

7. David requires RM80,000 in 5 years’ time. He has placed his funds in a vehicle that generates
an annual compounded rate of 7.75%. How much must he invest in a lump sum now?

8. There are 2 investment plans, X and Y. Plan X involves setting aside RM500 at the beginning
of every quarter for 10 years. Plan Y requires an amount of RM 250 at the beginning of each
quarter for 20 years. If the rate of return is 9% a year compounded quarterly, which plan
provides a higher future value?

9. Jason plans to retire with an annual income of RM125,000 each year for a period of 25 years.
Compute the total fund required if the retirement fund is earning 5% at the distribution phase
and the retirement fund starts immediately when Jason reached his retirement age.

10. Assume that you plan to buy a condominium 5 years from now, and you estimate that you can
save RM2,500 per year. You plan to deposit the money into the bank that pays 4% interest,
and you will make the first deposit at the beginning of each year. How much will you have
after 5 years?

11. Annual deposits of RM24,000 have been made at the beginning of each year into the annuity
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policy fund for the last 20 years. During this period, the interest earned on the deposits was
as follows:

i) 0% for the first five

ii) 8% for the next five years
iii) 9% for the last ten years

i. Calculate the accumulated amount at the end of 20 years.

ii. Calculate the total interest earned for the 20 years

BBMF2113 PERSONAL FINANCIAL PLANNING
2RFI/RBF JULY 2022
BBMF2113 PERSONAL FINANCIAL PLANNING
2RFI/RBF JULY 2022

Tutorial 3: Housing and Automobile Decision

1. Irene bought an apartment for RM250,000 and paid a down payment of RM50,000. She is
taking a 20 years loan at a nominal sum of 6% per annum on monthly rest from a bank.

a. What is the monthly installment?

b. What is the outstanding balance after paying for 12 years?
c. What is the principal paid at the 60th payment?
d. What is the total interest paid at 50th payment?

2. Fong had just visited the launch of new condominium project and he is very keen to purchase
a unit. The developer price for the unit that he had set his eyes upon is RM450,000. If he were
to sign up within the next three days, he can enjoy 10% cash rebate. Fong quickly called you
and seeks your advice on certain matters. Assuming he intends to take up a 25-year loan with
a 80% margin of financing at an average lending rate of 6.25% p.a.

a. What would be his monthly installment?

b. How much of the third installment went towards reducing the principal and how
much of it went towards interest expense?
c. Assuming he intends to fully settle his loan after 10 years, how much does he need to
repay the bank?
d. If he had continued paying throughout with the same terms and conditions, how
much interest expense would have been incurred by Fong?

3. Suppose you borrowed RM30,000 on a loan at a rate of 8% and must repay it in 3 equal
installments at the end of each of the next 3 years. How large would your annual payment,
how much of the first payment would represent interest, how much would be principal?

4. Johnny has just graduated from college and is eager to start his working life. To commute to
his office he needs a car. He is planning to buy a Myvi which will cost him RM48,000. His
parents are willing to help him to pay a down payment of RM5,000. He is applying a loan
from Mbank which will incur an annual interest rate of 3.55%. The tenure of the loan is 7
years.

a. What is his monthly installment for the car?

b. If his starting salary is RM2,500 nett per month, how much is his non-
mortgage debt service ratio? Can he afford the car?

5. Mark has identify a RM75,000 Toyota Vios to be his first car. He is planning to pay a down
payment of RM5,000. Harris has got an offer from a bank that charges him an annual interest
rate of 3.00% for the hire purchase loan for a duration of 5 years. He would like to take up the
offer. Determine the monthly installment that Mark needs to pay for the car.

6. Michelle wants to know what price home she can afford. Her annual gross income is
RM45,000. She owes RM750 per month on car and RM250 per month on study loan. She
knows she can get a 5.5%, 30 years mortgage. She expects to make a 20% down payment.
What is Michelle's affordable home purchase price?
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Tutorial 4: Protecting Your Property

1. The goal of Risk Management is to minimize any risk or potential risk. Discuss the risk
management process.

2. With an example, discuss the differences between physical hazard, moral hazard and morale
hazard.

3. Why are the following risks uninsurable:

a. Loss due to business operation

b. Loss as a result of landslide

4. What is the purpose of personal liability coverage?

5. What coverages are commonly included in a homeowner's insurance policy?

6. What factors affect the cost of home insurance?

7. If a house is razed by fire, what is the replacement cost to rebuild assuming inflation rate is
5% and the house was built at a cost of RM300,000 seven years ago?

8. Alex owns a condominium with a value of RM200,000. He has insured this property against
fire risks for RM180,000. In the event of a partial damage due to fire, the loss incurred was
RM90,000. Calculate how much loss Alex has to bear in this event.

9. Darren and his wife Jenny are legally separated. The couple owns a vacation cabin. Darren
purchased a RM25,000 property insurance policy on the cabin. Unaware that Darren had
purchased this coverage, Jenny purchased a RM50,000 property insurance policy on the
cabin. While both policies were in force, a RM12,000 covered loss occurred. Which of the
following claim would be the most likely available to them? Explain.

 Darren’s insurer pays RM4,000 and Jenny’s insurer pays RM8,000

 Darren’s insurer pays RM3,000 and Jenny’s insurer pays RM9,000
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Tutorial 5: Protecting Your Health

1. Discuss the various policies related to health insurance that are available in Malaysia market.
Which of the policies discussed is more important to you and your family?

2. How can you analyze the costs and benefits of your health insurance policy?

3. Describe both the liberal and strict definitions used to establish whether an insured is
disabled.

4. Paul is covered by a comprehensive medical policy that specifies a RM500 deductible each
calendar year and a 20% coinsurance provision.
In Feb 2018, Paul incurred RM5,000 in covered expenses. In June 2018, he incurred
RM10,000 in covered expenses. He incurred no other covered expenses during year 2018.

Based on the above information, calculate the amount Paul has to pay for year 2018.

5. Winston purchased a medical plan which had a Room & Board entitlement of RM150 and all
other expenses based on an As Charged Basis subject to an Annual Limit of RM60,000. One
day Winston was admitted to hospital for what was later diagnosed as dengue fever. Instead
of his eligibility for a twin sharing room, he opted for a single bedded room which costs
RM280 per day. Five days later when Winston was being discharged he received a total bill
of RM9,000. The policy imposed 20% co-insurance on expenses other than room and board.
Compute how much Winston has to pay and the amount he can claim from insurance
company.

6. John met a car accident and immediately rushed to hospital for treatment. He remained there
for 60 days, after which he was allowed to go home for further recuperation. During his stay
in hospital, he incurred the following expenses:

Surgery RM7,500
Physician RM3,000
Room and board RM 185 per day
Nursing service RM 2,500
Anesthetics RM 1,000
Wheelchair rental RM 100
Ambulance RM 150
Medicine RM 900

John has a medical policy with Zin Company that has RM2,000 deductible clause; an 80%
coinsurance clause; internal limits of RM180 per day on room & board; and RM5,000
maximum surgical fees.

How much John can claim from his insurance company? How much must he pay out of his
own pocket?
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Tutorial 6: Protecting Your Life

1. Ally earns RM75,000 annually. If she should die, she wants her family to receive RM60,000
annually for the next 15 years, with the first payment due upon her death. She also wants to
set aside a final expense fund of RM15,000 and pay off the mortgage, car loan and
outstanding credit card balances. She does not wish for her house and car to be sold upon her
death. She assumes that the inflation rate is 5% per annum. The extracts of her personal
balance sheet are as follows:

What She Has RM What She Owes RM

House 300,000 Car 15,000

Car 40,000 Mortgage 100,000

Bank deposit 60,000 Credit card balance 5,000

Life insurance (Sum 150,000

assured)

Determine the amount of Ally’s total life insurance needs.

2. Mary is a 72-year old widow who has recently been diagnosed with Alzheimer’s disease. She
has limited financial assets of her own and has been staying with her daughter Jane for 2
years. Her only income is RM850 a month from Social Security benefits. Jane wants to make
sure her mother will be taken care of if Jane should die.

Jane, 40, is single and earns RM55,000 a year as a human resources manager for a small firm.
She owns a condo with a current market value of RM100,000 and has a RM70,000 mortgage.
Other debts include a RM5,000 car loan and RM500 in credit card balance. Her retirement
account has a balance of RM24,500 and she keeps RM7,500 in a money market account for
emergencies.

After talking with her mother’s doctor, Jane believes that her mother will be able to continue
living independently for another 2-3 years. She estimates that her mother would need about
RM2,000 a month to cover her living expenses and medical costs during this time. After that
her mother would probably need nursing home care. Jane calls several local nursing homes
and finds that it will cost about RM5,000 a month when her mother enters a nursing home.
Her mother’s doctor says it is difficult to estimate her mother’s life expectancy but indicates
that with proper care some Alzheimer’s patients can live 10 or more years after diagnosis.
Jane also estimate that her personal final expenses would be around RM5,000 and she would
like to provide RM25,000 contingency fund that would be used to pay a trusted friend to
supervise her mother’s care if Jane was no longer alive.

Require:
Calculate Jane’s total life insurance requirements and recommend the type of policy she
should buy.
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3. While at lunch with a group of colleagues, one of your friends mentioned that she plans to
buy an investment-linked plan policy because it provides a good annual return and is a good
way to build savings for her 5 year-old’s son college education. What advice would you give
them?

4. What do the terms "term", "decreasing" or "declining term", and "whole life" mean with
respect to life insurance?

5. A decreasing term insurance provides coverage for the outstanding principal in the event of
death. Assuming that no such arrangement has been made in respect of the following loan:

Loan Amount : RM80,000

Annual installment : RM9,863 (assuming payable at end of each year)
Original term : 10 years
Number of installment paid :3

Advise on the amount of decreasing term assurance to be purchased immediately after the
payment of 3rd annual installment.
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Tutorial 7: Managing Credit

1. William is trying to decide whether to apply for a credit card or a debit card. He has
RM8,500 in a savings account and he spends his money frugally. What advice would you
have for William? Describe the benefits and drawbacks of each type of card.

2. Harvey recently graduated from college and wants to borrow RM50,000 to start a business,
which he believes will produce a cash flow of at least Rm10,000 per year. As a student,
Harvey was active in clubs, held many leadership positions and did a lot of community
service. He currently has no other debts, he owns a car worth about Rm10,000 and has
RM6,000 in savings account. Although the economy is currently in a recession, economic
forecasters expect the recession to end soon. If you were a bank loan officer, how would you
evaluate Harvey’s loan request within the context of the ‘5 C’s of Credit’? briefly describe
each characteristics and indicate whether is has favorable or unfavorable implications for
Harvey’s loan request.

3. For Alicia, the last few years have been a financial nightmare. It all started when she lost her
job. Because she had no income and no emergency fund, she began using her credit cards to
obtain the cash needed to pay everyday living expenses. Finally, after an exhaustive job
search, she has a new job that pays RM51,000 a year. While her monthly take-home pay is
RM2,975, she must now establish an emergency fund, pay off her RM7,300 credit card debts,
and start saving the money needed to begin an investment program.

a. If monthly expenses are RM2,150, what is the minimum amount of money

should Alicia save for emergency fund?

b. What steps should Alicia take to pay the RM7,300 credit card debts?

4. Audrey has monthly income of RM2,100. She has the following monthly payments: House

RM900
Car loan RM500
Visa card RM100
Student loan RM200

What is Audrey’s non-mortgage debt service ratio? Comment.

5. By law, credit card issuers must print their annual percentage rate (APR) their monthly
statements. A common APR is 18% with interest paid monthly. What is the effective annual
rate on such a loan.

6. Because of a job change, Charles has just relocated to another state in Malaysia. He sold his
furniture before he moved, so he is now shopping for new furnishings. At a local furniture
store, he has found an assortment of couches, chairs, tables and beds that he thinks would
look great in his new apartment. The total cost for everything is RM6,400. Because of moving
cost, he is a bit short of cash so he decided to take out an installment loan for RM6,400 to pay
for the furniture.
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The furniture store offers to lend him money for 48 months at a simple interest rate of 6.5%.
The credit union at Charles’s firm also offers to lend him the money- they will give him the
loan at compound interest of 6%, but only for a term of 24 months.

a. Compute the monthly payment for both of the loan offers.

b. Determine the effective annual rate for both loans.

c. Which is more important: low payments or a low effective annual rate? Explain.
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Tutorial 8: Tax Planning

1. Mr. Wong has 2 children. Age 19 and 12. The older child is currently attending college full
time whereas the younger child, who is disabled, is in primary 6. He bought a medical policy
for the younger child, paying an annual premium of RM3,900.

For the year of assessment of 2021, Mr. Wong’s net taxable income from employment is
RM379,260, of which RM350,000 is salary and the balance is taxable benefits-in- kind. He
also received net rental income of RM53,000. He contributes to EPF and SOCSO.

His wife is a full-time homemaker. The couple spend alternate weekends volunteering at two
orphanages (both approved for tax purposes). In 2021, Mr. Wong made donations totaling
RM10,000 in cash to these orphanages. In the same period, he bought books totaling
RM1,500.

Compute the chargeable income and tax payable for Mr.Wong for year of assessment 2021.

2. Encik Din, age 45, is married with five children. He comes to you for advice on how to
compute his personal tax liability for year 2021. He provides you with the following
information:

RM
His salary 75,000
Wife’s salary 42,000
Dividend received-by him 3,000
Dividend received -by his wife 2,000
Purchase of computer (by Din) 3,100
Life insurance- himself 2,500
Life insurance- his wife 1,800
Children education policies (Din as payor) 2,000
PRS contribution- Din 2,000
PRS contribution- wife 1,000
Approved donation by Din 500
Zakat- Din 950
Zakat- wife 550
Purchase of books 1,000 (each person)
Subscription to gym (Din) 1,800
Medical insurance- himself 1,800
Medical insurance- wife 900

4 of his children are in secondary school and one studies in University Malaya 1 st year in
Business study.

Required:

Din wants to know the tax liability between joint and separate assessment. You are required to
do the tax computations.
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Tutorial 9: Investment Planning

1. Bob and Mary Martin are both 35 years old. Although they graduated from college almost 15
years ago, they have never developed a diversified investment program. What extra money they
had was invested in high-tech stocks that did quite well until the last five years. Then, with the
economic downturn, they encountered major losses. How could asset allocation have reduced
the dollar amounts of the Martin's losses?

2. A couple in their early thirties, Allen and Sandra, recently inherited RM90,000 from a relative.
Allen earns a comfortable income as a sales manager and Sandra does equally well as an attorney
with a major law firm. Because they have no children and don’t need the money, they have
decided to invest all of the inheritance in stock market. However, because they are not familiar
with the market they turn to you for help. What kind of investment approach do you think the
couple should adopt—that is, should they be conservative with their money or aggressive?
Explain.

3. Discuss the advantages of investing through mutual funds versus investing directly in stock. If
you had to invest, which one would it be? Explain.

4. If you had RM100,000 that was invested at 7% and you wanted to withdraw RM10,000 at the
end of each year, how long would your fund last?

5. What would be the future value of a 5 year investment if the initial investment is RM100 at 10%
compound interest or at 10% simple interest?

6. What is the present value of a 5-year ordinary annuity of RM100 plus an additional RM500 at
the end of Year 5 if the interest rate is 6%?

7. Alan wants to have a lump sum savings of RM200,000 in 25 years’ time. Assuming he can earn
11% p.a. compounded after tax and expenses, what would be the size of the yearly payments into
the fund to accrue the desired lump sum, if the payments are made at the end of each year?

8. Ali plans to send his child abroad for university education. The tuition fees and living expenses
today is RM120,000 for the entire 3-year degree course. Ali assumes that the child will
undertake a three years degree course. Ali’s child is 15 years away from attending university. He
also assumes that the inflation rate is 4% p.a. and his investment return is 5% p.a.

a. Calculate the future cost of tuition fees and living expenses in 15 years’ time.
b. Calculate the monthly savings, starting immediately, in order to have sufficient funds to
realize Ali’s objective.
c. Calculate the monthly savings, starting immediately, in order to have sufficient funds to
realize Ali’s objective, if Ali wishes to save only for 10 years.
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Tutorial 10: Retirement Planning

1. A couple wants to accumulate a retirement fund of RM300,000 in current dollars in 18 years.

They expect inflation to be 4% per year during that period. If they set aside RM20,000 at the end
of each year and earn 6% on their investment, will they reach their goal?

2. A client is concerned about the impact that inflation will have on her retirement income. The
client currently earns RM40,000 per year. Assuming that inflation averages 5.5% for the first five
years, 4% for the next five years and 3.5% for the remaining time until retirement, what amount
must her first-year retirement income be when she retires thirteen years from now if she wants it
to equal the purchasing power of her current earnings?

3. Chin Chin has a retirement goal. She plans to retire in 20 years’ time when she is 55. She
would like to have a regular retirement income of RM100,000 per year during her retirement
for a period of 25 years. She expects to have the first withdrawal make immediately upon
retirement. She anticipates a return of 6% per year from any of her investments.

a. Compute the retirement fund that Chin Chin has to achieve when she retired.

b. If Chin Chin is able to set aside RM10,000 at the beginning of each year starting from now,
determine whether she would be able to achieve her retirement goal based on your answer in
Part (a).

4. Peter is going to retire soon. Currently he has RM1,200,000 in his retirement account. He
anticipates a return of 7% per annum on his retirement fund. He expects to live for another 25
years after retirement. To maintain his lifestyle during his old age, he would like to make
withdrawals at the beginning of every year from his retirement account. Compute the annual
withdrawal amount that Peter is entitled to from his retirement savings.

5. Hoon owns a condo worth RM240,000, a car valued at RM25,000, and miscellaneous assets
worth RM7,500. She owes RM185,000 on the condo and RM15,000 on the car and has no other
debts. Her retirement account, in which she is fully vested, contains RM27,500 in mutual funds.
She is insured with a RM500,000 term life insurance policy. What is her net worth?

6. Joe is planning for his retirement. He has determined that his car is worth RM10,000, his home is
worth RM150,000, his personal belongings are worth RM100,000. His investment in stock and
bond are worth RM300,000. He owes RM50,000 on his home and RM5,000 on his car.

Joe is planning to retire when he is 55. He is 40-year old now. He would like to have a regular
retirement income of RM60,000 per year during his retirement. He foresees that he may live up to
age 80, based on his family longevity history. He expects to have the first withdrawal make
immediately upon retirement. He anticipates a return of 5% per year from any of his investments.
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(a) Compute and comment on Joe’s net-investment-to-net-worth ratio.

(b) Compute the retirement fund that Joe has to achieve when he retired.

(c) If Joe is able to set aside RM10,000 at the end of each year starting one year from now,
determine whether he would be able to achieve his retirement goal based on your answer
in part (b).
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Tutorial 11: Estate Planning

1. Peter and Jane are in their mid-thirties and have two children, age 8 & 5. They have combined
income of RM95,000 and own a house in joint tenancy with a market value of RM310,000, on
which they have a mortgage of RM250,000. Peter has RM100,000 in group term life insurance
and an individual whole like policy for RM150,000. However, the couple has not prepared their
wills. Peter plans to do one soon, but they think that Jane doesn’t need one because the house is
jointly owned. As their financial planner, explain why it is important for both Peter and Jane to
draft wills as soon as possible.

2. Your best friend has asked you to be executor of his estate. What qualifications do you need, and
would you accept this responsibility?

3. Describe the basic trust arrangement.

4. Discuss typical reasons for establishing trust.

5. What essential qualities should a trustee possess?

6. Distinguish between a will and a trust.

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Tutorial 12: Financial Plan Construction & Modeling

1. Discuss the characteristics of an effective financial plan.

2. What is the purpose of having executive summary in a financial plan?

3. Is the disclaimer statement important to be included in a financial plan? Discuss.

4. Sometime even though a person had spent time constructing a financial plan with a
financial planner, why doesn’t the financial plan work?