managing-your-money-personal-financial-planning

PART A – YOUR PERSONAL REFLECTIONS ON THE MODULE – AN INTRODUCTION
 
20% of overall mark for the assignment. Suggested word count for Part A:  approximately 1,000 words.
 
Detailed information, instructions and a suggested template which you may wish to use for this piece of reflective writing (also referred to as a learning journal) are shown in a separate document on Canvas and there is also a link here:  ..\Reflection\Module reflections (learning journal) template.docx
 
To find the document on Canvas go to:

  • Modules
  • Overview
  • Assessment
  • Module reflections (learning journal) template

 
The marking criteria and scheme are shown below in Appendix A.
 
 
 
PART B – CASE STUDY
 
80% of overall mark for the assignment. Suggested word count for Part B:  approximately 3,000 words.
 
The questions are given at the end of the case study.  You must answer all of them. This piece of work covers all of the Learning Outcomes for the module.
 
The marking criteria are detailed in Appendix B.
 
 
This case study is about the Bright family.  The close family consists of the parents, Mr Frank Bright and his wife Mrs Betty Bright (aged 62 and 63 respectively).  They have three children; the eldest is a daughter Jessica, aged 29, then there is a son Spencer, aged 26, and finally the “baby” of the family, a second daughter Lizzie, aged 21.
 
Frank and Betty are partners in an unincorporated business called F & B Bright trading as Home Office Solutions (HOS). Frank is a 60% partner and Betty is a 40% partner in the business (so that between them they own it 100%).  HOS (as the name suggests) trades as designers and installers of home offices. They advise and source office furniture, IT equipment and systems, software, security products, etc. to enable their customers to work at home.  The business has traded successfully (if not spectacularly) for many years, providing Mr and Mrs Bright with a good income.  They employ 10 people (designers, IT technicians, installers, etc), including their daughter Jessica (about whom see further information below). Both Frank and Betty participate in the management of the business but Frank tends to concentrate on business development and project management whilst Betty oversees the administrative and financial side of things.
 
Unlike many UK businesses, HOS has had a “good” Covid-19 lockdown because demand has increased substantially and, with careful management, it has been possible to continue with the business throughout.  Frank and Betty are considering recruiting additional employees and they have seen an opportunity to market their services not only to individuals but to large corporate organisations who wish to support their employees to continue working from home, rather than returning to their city centre offices.
 
This opportunity has arisen at a time when in normal circumstances Frank and Betty would have been hoping to reduce their involvement in the business and to look towards retirement.  Prior to the pandemic they were hoping to at least reduce their working hours within the next two – three years, if not stop working altogether, so that they could enjoy a more relaxed lifestyle, including playing more golf which they both enjoy.  They have discussed this with their accountant and financial adviser, Solomon Grundy, and it seemed that there were a several possible ways of achieving this:
 

  • firstly, realising their investment in the business by an outright sale to a third party, hopefully resulting in a substantial amount of capital;
  • secondly, by recruiting a manager from outside the business who would develop and run it in their absence. This would allow the Frank and Betty to continue to take profits to support their income in retirement; and
  • thirdly, by encouraging one or more of their children to take a managerial role in the business. This could possibly be rewarded by a partnership share, although Mr and Mrs Bright are not sure that they would wish the children (or any one of them) to have overall control at this stage.

 
The business is difficult to value but based on the profits history, prospects for the future and the current realisable value of net assets, Mr Grundy has suggested the value likely to be realised in the event of an outright sale might be in the region of £1,250,000. He has suggested that a sale should qualify for a low rate of Capital Gains Tax but the Bright’s don’t really understand the reasoning behind this.
 
Quite apart from the business, Frank and Betty have built up some personal assets as follows:
 

  Frank Bright
£
Betty Bright
£
Notes
Family home, 101 Dahlia Drive, Beverley Market Value £350,000, held as tenants in common*.  Original cost in 1983 £50,000.  Mortgage paid off.
Second home in Scarborough 275,000 Used for family holidays, 100% owned by BB (inherited from her parents in 2010, probate value £210,000 )
Narrow boat 64,000 Used for family holidays and rented out at other times.  Owned 100% by AB. Moored at Farndon Marina. Original cost in 1995 £31,000.
2 buy-to-let residential properties 120,000 120,000 Apartments at Victoria Dock, Hull.  FB and BB bought one each at the same time in 2005.  The apartments cost £65,000 each, purchased for cash.
Portfolios of quoted shares and securities 105,000 80,000 These are the current market values.  The investments provide a small amount of dividend income each year.
Building society and bank deposit accounts 23,000 29,000 Provide a very small amount of interest income each year.
Premium Bonds 12,000 7,000  
Bank current accounts 28,500 1,500  
Goods and chattels 21,000 56,000 These estimated valuations include an equal share of the household furniture etc.  BB owns some pieces of good jewellery which FB has given her over the years of their marriage.

 
*If you co-own a property as tenants in common, each co-owner owns a specific share of the property. A tenancy in common agreement is ideal for people who wish to own property jointly with their partner but wish to leave their share of the property to someone else when they die. … When a property is held as tenants in common the owners hold the equity in shares. … Upon the death of tenants in common, their share passes not automatically to the survivor as with joint tenants but via the deceased’s will or, if there is no will, via the rules of intestacy.
 
Frank and Betty Bright have a very simple will (each of which exactly mirrors the other) by which the first to die leaves all of his/her possessions to the surviving spouse.  When the surviving spouse dies the whole estate is divided equally between the three children.  The children are appointed executors.  Apart from the usual provisions about paying debts and funeral expenses these are the only contents of the wills.
 
Frank and Betty make lump sum contributions to defined contribution personal pension schemes once a year.  The amount each of them will contribute annually is decided on once the business accounts have been drawn up and the level of profits for the year is known.  Based upon current expectations they anticipate that when they retire they will be entitled to the following benefits:
 

  • Frank Tax free cash lump sum £75,000     Annual pension £7,400
  • Betty “     “      “        “        “    £41,000          “           “         £3,600

 
The pension income figures are index linked and Frank and Betty’s contributions are well below the limits above which tax reliefs are lost.  Frank and Betty are disappointed with the projected annual pension incomes but defined contribution pension schemes have been severely adversely affected by poor investment returns in recent years.
HOS operates an occupational pension scheme for employees but Frank and Betty are not able to participate because they are self-employed and they thus have to make alternative pension provision by using personal pension schemes.
The accountant (Solomon Grundy) has suggested to them more than once that it might be beneficial for them to incorporate the business (by transferring it to a limited company) so that the partners could join the occupational pension scheme.  There might also be other advantages to this course of action, such as the tax-efficiency of dividends.  Frank and Betty acknowledge the possible benefits of this course of action but somehow they have never got round to making their minds up.
Mr Grundy has also brought to their attention the lack of a succession plan for the business, and he is concerned that this might impact on the partners’ wishes to step back from the business in a few years’ time.  He has suggested that Frank and Betty should have discussions with their children to find out what their intentions are for the future. Jessica already works for HOS as a designer but this is not a managerial role, and she doesn’t have much to do with the IT side of things or business development.  Her parents don’t know whether she is interested in increasing her responsibilities or whether she prefers to focus on her young family.   Their son Spencer has worked for HOS for short periods in the past, typically during university vacations, but he hasn’t so far expressed any particular interest in taking a serious part in running the business.  Their younger daughter Lizzie isn’t interested in the business at all.
Mr Grundy has also pointed out to Frank and Betty that their existing wills are probably not ideal as far as Inheritance Tax is concerned and that there are steps which they could take now to improve the situation considerably.  He is also concerned that neither of them has much in the way of life insurance policies, (apart from Keyman policies to protect the business) and that they may not have sufficient pension income when they do retire.  However Frank and Betty have been far too busy just getting on with life to pay much attention to this advice.
 
Frank and Betty have now come to the conclusion that it is time they addressed all of the uncertainties regarding the business, their retirement, their children and grandchildren (present and future).  If any changes are to be made their overall intention would be to treat everyone fairly whilst protecting the family’s assets as far as possible.
JESSICA BRIGHT
Jessica (29) lives with her partner Anthony (28). They have two small sons aged 3 and 2.  Although Jessica and Anthony would like to get married one day (any excuse for a new dress and a party!) they have no immediate plans to do so.  They don’t really think it is necessary to be married these days although Jessica’s Mum keeps telling her that it would be a good thing to do so, to secure the financial future of the whole family if for no other reason.  Neither Jessica nor Anthony has made a will, they just assume if one of them died then the other would automatically inherit the other’s possessions.  Neither of them have any life insurance, apart from Jessica’s Death in Service benefit mentioned below, or any other kind of insurance products.
Jessica works for HOS as a designer and her salary is £30,000 per annum.  Along with the other employees she is a member of the HOS occupational pension scheme and contributes 8% of her gross salary.  HOS makes employer’s contributions of a further 12% of gross salary.  The pension scheme includes Death in Service benefit of three times’ annual salary.  Jessica graduated in 2013 with a 2.1 in Industrial Design from Leeds Becket University.  The current balance on her student loan is £18,000 (Plan 1).   Anthony works part-time from home for a local IT consultancy.  This is very convenient because he is able to combine this with looking after the children, with a considerable amount of help from his mother, who takes over childcare when Anthony is busy.  Anthony’s salary for this part-time employment is £25,000 p.a. and he contributes 6% of the gross to his employers’ pension scheme (the scheme does not include a Death in Service benefit).   Anthony graduated with a 2.2 in Computer Studies from Leeds Metropolitan in 2016 and his Student Loans amount to £15,000 at today’s date (Plan 2).
The family live in a rented house in Cottingham and the rent is £650 a month.  Their other regular monthly costs include the following:
£
Council tax                                                                                          175
Gas and electricity                                                                           120
Water                                                                                                     35
House contents insurance                                                              29
Broadband                                                                                            45
Subscriptions to streaming services                                           24
2 x smartphones                                                                                76
Car loan repayments                                                                      105
Car insurance                                                                                       32
Fuel – on average                                                                              80
Supermarket – food and cleaning products                           560
Gym memberships (x 2)                                                                  70
Fortunately they do not have to pay any nursery fees as between them Anthony and his mother look after the children.
Jessica and Anthony enjoy an active social life and now that lockdown has been lifted they have returned to their old habit of regular meals out with their friends.  This probably costs around £400 a month including the cost of a babysitter. Jessica is a member the local tennis club (annual subscription £100) and Anthony is a member of the cricket club (annual subscription £76).  They both like nice clothes and shoes, and to see the children well dressed, and can spend as much as £350 a month.  They enjoy holidays and although they have been restricted to a “staycation” this year at the family’s holiday home in Scarborough they are planning a trip to the Maldives next year (likely cost for them all:  £4,500).  They also seem to get through a fair amount of money on sundries such as birthday and Christmas gifts.  This probably averages around £200 a month.
Jessica and Anthony are finding that they are spending all of their disposable income, and more.  In fact the overdraft on their joint bank account seems to be creeping up even though they think they are being careful with their money.  The overdrawn balance is now £5,900. They each have a few credit cards and several of these have quite large amounts outstanding on them (the total amount is around £12,400 now).  Sometimes they only make the minimum monthly repayments on one or more of the cards but even so these account for about £300 a month. They are well aware that they ought to draw up a budget to help them manage their money but somehow they are always so busy that they never get around to doing it.
Jessica and Anthony would love to buy a home of their own, instead of continuing to rent a house.  They don’t have any savings for a deposit so buying a property seems like a very distant dream at the moment.
Jessica enjoys her job at HOS.  She would be interested in developing her role in the business but the subject has never come up for discussion with her parents.  She is aware that they are getting older and she would like to help them to take more time off from work to relax, if this were possible.  She would also like to be sure that if they did retire fully at any time in the future they would have sufficient income to enjoy life.  She thinks that she might have a quiet word with her brother Spencer next time she sees him, to find out what he thinks.
Note:  a family in Jessica and Anthony’s position would probably be entitled to various benefits and tax credits however this is such a complex area that it has been disregarded as far as this case study is concerned.
SPENCER BRIGHT
Spencer’s financial outlook on life is very different to Jessica’s.  He is now aged 26 and through hard work and careful money management he is already quite well established in life.  He is a clever young man and obtained a First Class degree in Economics from the LSE in 2015, followed by a Masters.  His student loans total £38,000.  He works for a firm of commodities traders in London and his current salary is £85,000 per annum plus annual bonuses.  He is enrolled in his employers’ pension scheme and his employee’s contribution is 6% of his gross salary. This percentage could be increased if he chose to do so.
Spencer has already “made it” onto the property ladder, purchasing a small new build house in Hatfield, Hertfordshire last year for £285,000.  One of the advantages of this small town is that there is a mainline rail link directly into central London.  Fortunately he has been able to work from home during lockdown and this has saved him the expense of travel to work. This has been a welcome respite from commuting but he will be starting to spend some time in the office again in the New Year and he is looking forward to seeing his colleagues and clients again.
Spencer had saved some of his bonuses over the previous couple of years and was able to put down a deposit of £50,000 on the house, pay the stamp duty and purchase basic furnishings from savings, meaning that he only required a £235,000 mortgage, over a 30 year term, which is manageable on his current salary.  Other than the mortgage and his student loans he doesn’t have any debt.
Spencer has a spare bedroom and he lets this out to one of his friends, Tracey, for £700 per calendar month.  He doesn’t declare this income on his tax return as someone in the pub told him that it was tax free.  Spencer is rather anxious about this though and thinks that he should check whether this is correct advice.
Despite the costs of buying his own house, enjoying an active social life and going on regular foreign holidays to exotic locations, Spencer is still finding that he has a little spare cash left at the end of some months after paying all his expenses.  He has now started to think that he has reached the time in his life when he should be starting to build up a balanced portfolio of savings and investments.  He has read somewhere that such a portfolio should aim for both income and capital growth but he doesn’t really know what this means.  In the short term he would like to have some easily accessible funds available in case of emergencies or (if the worst came to the worst) he was made redundant or fell ill and wasn’t able to work.  Thinking of the longer term he would like to be able to pay off his mortgage early, retire at a reasonably early age (maybe 60?) and guarantee a good income in retirement.  There is also the possibility that he might decide to get married one day and have children.  He is wondering whether he should pay off his student loan earlier than he is strictly required to do.  One of his pals mentioned the other day that people with high annual earnings were the only category of young people who should pay off their student loans early but Spencer doesn’t know whether this applies to him or not.
 
Spencer hasn’t made a will.  As he doesn’t have a wife or children he doesn’t think that he really needs to.  He is under the impression that his parents would inherit anything he left anyway. He has taken out an insurance policy for buildings and contents cover for the house but doesn’t have any other insurance policies. He is a bit worried that if he was made redundant from his job he might struggle to pay the mortgage.
 
Spencer has worked for his parents’ business during school and university vacations, usually in the warehouse and without taking on any responsibility.  He isn’t really interested in increasing his involvement in HOS but, like Jessica, he hopes that his parents will be able to retire fairly soon and enjoy their old age.  Although it has never been discussed, he would be happy for Jessica to take over the running of the business eventually but there is a proviso – he would like his eventual inheritance to be protected and he hopes that he and his two siblings will share the value of their parents’ estates equally when the time comes.
LIZZIE BRIGHT
Lizzie is 21 years old and I am sorry to say that because she is the youngest of the three she was rather spoiled as a child, by her parents, grandparents and older siblings.  She is an intelligent girl but has a happy-go-lucky attitude to life and prefers to “take the easy way out” so instead of working hard at school she concentrated on taking part in numerous sporting activities (which she excelled at) and socialising with other pupils.  (She was actually excluded for a while from secondary school during her A level year because the Head of Sixth Form thought that she was distracting the other pupils from their school work.)  As a result she did not do well in either her GCSEs or A levels and did not manage to obtain a university place. She still lives at home with her parents without contributing anything to the household finances.  They frequently try to engage her in conversation about job prospects, earning a living and her future, but she hasn’t been able to find a job which attracts her and to be honest she hasn’t been looking very hard.  She is having too much of a good time right now, especially since lockdown was eased, going out with her friends and socialising.  So she “fobs them off” whenever Mum or Dad raises “difficult” subjects about earning her own living.  They are beginning to wonder how she manages to fund her lifestyle.  They give her an allowance of £50 a week and provide her with a car and fuel, but this doesn’t seem enough to pay for her social and sporting activities or the nice clothes and shoes which she likes so much.
 
So you may ask:  How does Lizzie afford this kind of life on £50 a week?  Well, of course she doesn’t, she enjoys this kind of lifestyle because she is using (and abusing) various kinds of credit.  She has got several high-interest credit cards (the type which specialise in high risk customers) and when one is “maxed out” she applies for a new one.  She only makes the minimum monthly repayments, or else misses payments altogether. Another question that you may ask is:  If she has no earned income, why have her applications for cards been approved?  I am sorry to tell you that Lizzie has resorted to telling “little white lies” on her applications about her income.  She has been refused a card on several occasions when the providers have checked her credit score, but eventually she always manages to find a new one.
 
Lizzie has recently come across a new way of spending with high street and online stores.  She doesn’t know exactly how it works but it falls under the heading of “Buy Now Pay Later” and all you have to do is give the vendor a few details and you can obtain your purchases without paying anything at the time you buy them.
 
Because both of her parents are working away from the home on a full time basis they are not usually at home when the post arrives.  They are therefore not aware that Lizzie receives quite a lot of official-looking letters with bank or finance company logos and “URGENT” stamped in red on the envelopes.  She never opens these and she puts them straight into the paper recycling bin unopened.  The exception is if she thinks that one of them contains a new credit or store card.  Mostly she has set up her bank and card accounts with online statements only, but the envelopes keep coming in the post and the number seems to be increasing.  Her parents are also not fully aware of the number of deliveries that Lizzie receives from online shopping stores as she is very careful to open the parcels and put the contents away in her walk-in wardrobe before they come home from work.
 
Despite her easy-going attitude to live Lizzie is starting to feel a little uneasy about her financial situation.  She recently changed her mobile phone number because she was getting a high number of calls and messages from financial institutions asking her to make payments to them and to significantly reduce the outstanding balances.  Some of these also seemed to be from debt collection agencies.  There was an unexpected caller to the house the other day when she was at home on her own and Lizzie wondered if he was a debt collector.  She didn’t answer the door and he put some paperwork through the letter box which said he would call again next week.  Lizzie quickly put this into the refuse bin before anyone else saw it.
END OF CASE STUDY
PART B – CASE STUDY – REQUIREMENTS
ANSWER ALL FOUR QUESTIONS
When answering the individual questions you should consider the interests of all family members.  Bear in mind that Mr and Mrs Bright want to do what is best for the whole family (and future members of it) and would not want to benefit any one person at the expense of any other.  Also, none of the children would wish to do anything which would not be to the benefit of their parents or their siblings.
Some calculations and computations are required for some questions.  It is recommended that you prepare these in the form of tables and include them in appendices at the end of your answer rather than in the body of your work.
References and citations in accurate Harvard format are required.
 
Summary of marking scheme:
 
Question 1 – Mr and Mrs Bright                                                 35 marks
Question 2 – Jessica Bright and her family                             20 marks
Question 3 – Spencer Bright                                                        10 marks
Question 4 – Lizzie Bright                                                              10 marks
Overall quality of presentation and referencing                    5 marks
Total marks for Part B                                                                     80
 Question 1 – Mr and Mrs Bright
What advice would you offer to Frank and Betty Bright about the steps which they could or should take to achieve their objectives of protecting and developing the value of their business, enabling their eventual retirement with a satisfactory level of retirement income and maximising the value of their estates when one (and eventually both of them) dies?
 
You should take into account the taxation implications (whether beneficial or adverse) of any recommendations you make, particularly Income Tax, Capital Gains Tax and Inheritance Tax.  (Hint:  an IHT calculation would enhance the quality of your answer.) Consider the effects of any suggestions on other members of the family.
QUESTIONS 2, 3 & 4 ARE ON THE NEXT PAGE
CASE STUDY QUESTIONS CONTINUED
Question 2 – Jessica Bright and her family
What advice would you offer to Jessica and Anthony about any changes they could or should make to the way they manage their finances? Highlight any aspects of their current way of life which concern you, particularly in respect of the safety and security of each other and their children, and suggest ways in which the situation could be improved. Do you think that there is any way that they will ever be able to buy their own home?  Do you think that they should aspire to do so?
 
As part of your answer you should construct a budget for the family to explore whether there are ways that they could improve their money management.  In order to do this you will need to work out the “take-home pay” of each of them. This will mean preparing individual income tax computations and including payroll deductions such as National Insurance Contributions, pension and student loan repayments.
 
 
Question 3 – Spencer Bright
 
What suggestions would you offer to Spencer about his objective of building up a balanced portfolio of investments?  Do you think it would be advisable to pay off his debts first?  You should consider both the short, medium and long term.  When considering the longer term you should comment on whether his income in retirement is likely to be sufficient.  If not, how would you suggest that he tackles the likely shortfall?  Consider whether you think that he should make a will.   Would you advise that he take out any additional insurance products?
Question 4 – Lizzie Bright
Outline to Lizzie the potential consequences of continuing with her current way of life. On the assumption that she then realises that she needs to take action, how would you recommend that she deals with the situation?  Comment on the possible effects of her actions on other members of the family.
REMEMBER – YOU SHOULD HAVE ANSWERED ALL FOUR QUESTIONS
 

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