Personal Finance Essay Sample

To assist the Brittens choose the best investing option for their $ 40. 000 nest eggs. we will compare the returns of the assorted recommended investings options by ciphering their after revenue enhancement outputs.

The assorted investing options and their after revenue enhancement outputs are shown in the undermentioned tabular array

The condominium

The mortgage company requires $ 10000 as the down payment for the condominium. The $ 10000 down payment will be deposited in an history which is traveling to gain involvement on top. The involvement will off-set some of the mortgage costs. The premise made here is that the mortgage investing option is the most cost effectual and therefore low-cost. Another premise is that the house is non for sale and therefore no revenue enhancement on the capital grasp.

Municipal bonds

Are issued by province. metropolis or local authorities. Interest received from municipal bonds are exempt from federal revenue enhancement. exempt from province revenue enhancement if brought by occupants of that province and exempt from local revenue enhancement if bought by occupant of the vicinity where the bond was issued

By and large is a signifier of revenue enhancement nest eggs by people who have big revenue enhancement loads. Outputs are much lower than corporate bonds.

Corporate stock

Stockss represent equity ownership in a company therefore one owns a piece of the company. Because of the high returns of stock. they are ever high hazard. The dividend received and capital additions are nonexempt. Assume no capital grasp of corporate stocks

Salvaging history

Offered by most commercial Bankss. There are fundamentally two types of history in the market

Basic nest eggs account-the involvement offered in these type of history is normally really low but the client can be able to retreat the money if they so wish. The involvement from this history is nonexempt

Money Market account-the involvement offered in this type of history is comparatively high compared to other savings histories. The lone drawback with this sort of history is that you can non freely retreat the money. The money market history involvement is non nonexempt hence presents a revenue enhancement economy

High growing common stocks

Common stock represents equity ownership in the company investor therefore is portion proprietor of the company. Stocks normally have high returns and therefore are high hazard besides. The capital additions and dividend. received are taxed.

There are no dividends in this instance but the capital additions is 10 %


The sum of nest eggs that the Britten’s have is $ 40000. We can infer from the computation of the person after revenue enhancement outputs of each of the available investings that the first option that the Britten’s should put in is the Condominium.

The condominium requires $ 10000 and has the highest return. From the tabular array above we can see that it has an after revenue enhancement output of 10 % . This investing option should rank as the first blackball any other factors e. g. mortgage rates. continuance and flexibleness.

The 2nd investing option should theoretically be the High giving up common stocks. This is because it has the 2nd best after revenue enhancement output of 5. 76 % . However this could alter due to the hazard profile of the Britten’s. If they are willing to take a high hazard since stocks are high hazard investings so they can put in this option.

If they are risk averse. so the Municipal Bonds option is the manner to travel for the Britten’s. This investing option has a return of 5 % after revenue enhancement. Another most obvious advantage of this sort of investing is that it is revenue enhancement free and hence revenue enhancement nest eggs.

The overall investing advice is that ;

Invest in the Condominium as the first option ( $ 10000 ) and so depending on the hazard profile. if hazard takers ; put the staying $ 30000 in the High Yielding Common Stocks. If hazard averse. put in the revenue enhancement free Municipal Bonds

Notice here that the nest eggs history is non considered because it has much lower after revenue enhancement output.

Part II Page 2

Credit card finance charges are calculated utilizing different methods by the issuer. Therefore. the recognition card holder should be able to understand how each method works therefore enabling him/her to take cheaper beginning of recognition.

There are three methods of ciphering recognition card finance charges

Average day-to-day balance

This method calculates involvement based on the outstanding balance at the terminal of each twenty-four hours. The outstanding balance is tracked each twenty-four hours by seting for any purchases and payments made.

The involvement can be compounded monthly or day-to-day depending on the footings of the recognition card. If the involvement is compounded daily the involvement is calculated on the day-to-day balance and added to the gap balance the undermentioned twenty-four hours ( Street Authority: 2008 ) .

Premise: involvement compounded daily

Dayopening balancepurchasespaymentsshutting charge

1 600 – – 600 0. 27

2 600. 27 – – 600. 27 0. 27

3 600. 54 – – 600. 54 0. 27

4 600. 81 – – 600. 81 0. 27

5 601. 08 80 – 681. 08 0. 30

6 681. 38 – – 681. 38 0. 30

7 681. 68 – – 681. 68 0. 30

8 681. 98 – – 681. 98 0. 30

9 682. 58 – – 682. 28 0. 30

10 682. 58 – ( 200 ) 482. 79 0. 21

11 482. 79 – – 482. 79 0. 21

12 483. 00 – – 483. 21 0. 21

13 483. 21 – – 483. 21 0. 21

14 483. 42 – – 483. 42 0. 21

15 483. 63 100 – 583. 63 0. 26

16 583. 89 – – 583. 89 0. 26

17 584. 15 – – 584. 15 0. 26

18 584. 41 – – 584. 15 0. 26

19 584. 67 – – 584. 67 0. 26

20 584. 93 – – 584. 93 0. 26

21 585. 19 – – 585. 45 0. 26

22 585. 45 – – 585. 71 0. 26

23 585. 71 – – 585. 71 0. 26

24 585. 97 – – 586. 97 0. 26

25 586. 49 – – 586. 49 0. 26

26 586. 49 – – 586. 49 0. 26

27 586. 75 – – 586. 75 0. 26

28 587. 01 – – 587. 01 0. 26

29 587. 27 – – 587. 27 0. 26

30 587. 53 50 – 637. 270. 28

Entire finance charge 8. 10

Interest daily = 16 % ?12 ?30 = 4. 4-4

Previous balance method

This method calculated the finance charges based on the balance owed at the terminal of the last charge rhythm. This in kernel agencies that it does non see the current period’s payments. purchases and merely credits.

The monthly involvement = 16 % ? 12 = 1. 33 %

Previous balance = $ 600

Therefore finance charge = 600 ten 1. 33 %

= $ 8

The draw back of this method is that the publishing company can bear down the recognition card holder involvement on balances already repaid.

Adjusted balance methods

This method of ciphering recognition card finance charge considers all the minutess that place during the charge rhythm. This means that purchases are added. payments subtracted and credits added to the gap balance in order to get at the shutting balance in which the finance charge is calculated on ( Learn Money: 2008 ) .

This method is the most good to recognition card holder in footings of lower finance charges.

Previous rhythm balance /opening balance ( current period )

= 600 Nov. 1

Attention deficit disorder: purchase 80 Nov. 5

100 Nov. 15

50 Nov. 30

Less: payments( 200 )Nov. 5


Monthly involvement rates = 16 % ?12 = 1. 333 %

Finance charge = $ 630 x 1. 333 %

= $ 8. 4

Best beginning of recognition

From the above computations. it is apparent that the cheapest beginning of recognition is old balance method. But this is the instance merely because Nancy made merely one payment while bear downing more. Otherwise the best method for the recognition card holder is the adjusted balance method in that it considers all payment. credits and purchases. Therefore. if Nancy had made more payments. her finance charge would be much lower under adjusted balance method. This method works best if the recognition card holds repays more.

The ideal method if the recognition card holders wish to increase the outstanding balance is the old balance method. this is because the current finance charge is calculated on the old balance which would be lower than current balance.

Part III Page 3

Advice on fiscal troubles

It is non unusual that a individual can hold fiscal jobs. which can ensue in his inability to refund the duties. If a individual is unable to run into his current and long term duties. so. he can register for bankruptcy under Chapter 13-Wage Earner Plan or Chapter 7- Straight Bankruptcy.

Chapter 13-Wage Earner Plan

This bankruptcy program is fundamentally a rearranging of debitors fundss. which consequences in to a prepayment agenda for the debts owed while at the same clip screening the debitor from foreclosure. garnishment and levies. It is non filed by corporations and partnerships.

For a debitor to measure up to register Chapter 13 bankruptcy. he must demo agencies of refunding past debts every bit good as have incomes more than cost of life. Debtors must besides seek advice of recognition counsellor within six months before make fulling for bankruptcy. The debitor must besides go to money direction categories paid by them before being granted the bankruptcy order.

After the order has been issued. it will be reported in the books for up to 10 old ages. The benefit of this method is that the debitor will derive from fiscal advice. This type of bankruptcy leads to a refund program of the debts owed.

A Chapter 13 bankruptcy allows the debitor to maintain the assets while refunding the debts as compared to Chapter 7. which allows settlement of some assets.

Bankruptcy orders safeguards the estate by signifier of an automatic stay. which prohibits repossession without orders of bankruptcy tribunals.

The debitor formulates his refund program which if approved by the tribunal. a legal guardian is appointed ( who charges for the services ) and takes over the estate for the period of refund.

Chapter 7-Straight bankruptcy

This signifier of bankruptcy extinguishes the debts in the terminal with some assets being disposed off to pay the debts.

Chapter 7 bankruptcy is non possible for debitors who can register under Chapter 13 or have been discharged from a bankruptcy during the last 6-8 old ages. The debitor must besides go to recognition direction categories and reding

Bankruptcy allows the debitors to hold an automatic stay where the creditors can non β€œtouch” the estate without the permission of bankruptcy tribunal.

A legal guardian is besides appointed to supervise the direction of the assets with the purpose of paying off the debts owed. The legal guardian sells-off non-exempt assets to pay off the creditors. Exempt assets are largely personal effects. family. pensions. life insurance. unpaid earned rewards. public benefits. portion equity on abode and motor vehicles.

A creditors meeting is called by the legal guardian to discourse the bankruptcy. Secured debts creditors can reclaim the collateral provided.

All the debts are cleared except debts such as child support. revenue enhancement debts and pupil loans or deceitful debts.

Any reception from heritage. insurance. divorce colonies with 180 yearss of registering for must be declared to the tribunal.

Therefore if a individual can non comfortably run into their current or future duties they can choose to register for bankruptcy under Chapter 7 or 13 depending on their position ( legal ) and their fiscal place.


FindLaw ( 2008 ) .An Overview of Chapter 7 Bankruptcy. Retrieved on 28/2/2008 from hypertext transfer protocol: //bankruptcy. findlaw. com/bankruptcy/bankruptcy-chapter-7/bankruptcy-overview-chapter-7 ( 3 ) . hypertext markup language

Larson R ( 2008 ) .Chapter 13 Bankruptcy-Wage Earner Bankruptcy. Retrieved on 28/2/2008 from hypertext transfer protocol: //www. expertlaw. com/library/bankruptcy/chapter_13_bankruptcy. hypertext markup language

Learn Money ( 2008 ) .Financing Ratess.Geting Technical with Interest Calculation. Retrieved on 26/2/2008 from hypertext transfer protocol: //www. learnmoney. co. uk/credit-cards/financing-3. hypertext markup language

Street Authority ( 2008 ) .Average Daily Balance Method. Retrieved on 26/2/2008 from hypertext transfer protocol: //www. streetauthority. com/terms/a/average-daily-balance-method. asp

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