Manage Your Money

Introduction

According to the authoritative definition of American Financial Planning Association that financial planning is to achieve personal life goals through the proper management of personal financial resources. It is not only to consider the accumulation of wealth, but also consider the use of wealth (Folsom & Boulware, 2004). From the contents, personal financial planning includes consumer financial planning, insurance financial planning, financing financial planning and investment financial planning (Gitman, & Joehnk, 2007). In this report, the financial issues of wife Penny and the son Raj in the Hofstadters family are studied mainly and their financial planning are discussed.

The financial problems for Penny

Penny is vague about a lot of things, including how the different taxes operate, the basis on which she have to pay taxes, how much their household costs to run, and the price of cupcakes for the café.

The taxes guidelines for Penny

Penny should clear her liabilities for tax, understand how the different taxes operate and which taxes she should pay. Penny has her own café business. She also has an advisory work in the company. She gets incomes from both the two works. The income tax should be paid by Penny as flowing:

Total Earned Savings Divided

Earned income

advisory fees 20,000 20,000

Salary 9,600 9,600

Business profits 24,350 24,350

Less donation 2,000 2,000

Savings income

Building society interest 6,750 6,750

Bank interest 3,500 3,500

Divided income

UK gilts 4,500 4,500

UK dividend 1,750 1,750

Foreign dividend 1,500 1,500

Total income 69,950 51,950 10,250 7,750

Less PA 6,475 6,475

Less capital allowances 10,200 10,200

Taxable income 53,275 35,275 10,250 7,750

Total Earned Savings Dividends

Taxable income 53,275 35,275 10,250 7,750

Taxable as follow:

Basic rate

Higher rate

On earned income 35,275 @20% 7,055

2,125 @20% 435

On savings income 8,125 @20% 1,625

On dividend income 7,750 @22.5% 1,743.75

Total tax payable 10,858.75

Because the café is an unincorporated business, so it needs to pay income tax on profits. The taxes can be paid separately on 31st January 2011, 31st July 2011, and 31st January 2012.

According to the UK tax system PAYE, as an individual, the income tax will be charged according to the fiscal year. Financial Year starts from April every year.

Personal annual income is divided into four parts: Part 1 is called Personal allowances, no taxes; Part 2 is called Starting Rate, is 10% from £0-£2,440; Part 3 is known as the Basic Rate, is 20% from £0-£37,400; Part 4 is High Rate, is 40%,Over £37,400. Allowances and tax rates of each year will be changed, Personal allowances for 2010/11 is £6,475. As self-employed individual, Penny's salary is £800 per month, so she needs pay income tax for an annual income of £9,600 after April 2011. The totally amount of her earned income is: £20,000+£24,350+£9,600-£2,000=£51, 950. Savings income is £6750+£3500=£10250, The amount of dividend income is £4500+ £1750+ £1500= £7750.

As to the employees, Penny needs to the income taxes which deducted from gross pay including the National Insurance.In addition, the business should charge VAT from the customers, and pay VAT to the suppliers; and then (usually quarterly) report to the UK Customs and Excise, the standard rate of VAT in the UK is 17.5%. In her advisory work, as a director, Penny needs to pay income tax for her income £20,000 from the company.

The financial problems for Raj

As to Raj, it can be seemed that Raj was in an embarrassed finance status, He has overdrew his current account and owed £2,500, thus he needs to pay both the high interests on his overdraft and credit card debt. He also has a student loan, and he do not know how to pay off his loan and overdraft. He has no ideas how to finance a move to Leeds.

The financial recommendations for Raj

Cash and debt management

According to his current repaying capability, he chooses to the minimum repayment of 2% of the credit card debt each month. His total expenditures every month was about £355, except the specific bills, he seems to spend some money aimless and unsurely, thus he even did not know where he spent approximately £50 every month.

There is generally certain a interest-free period for credit card after the overdraft spending during which the full repayment of cardholder will not need to pay any interest. So the overdraft must be repaid the full amount in advance. It can be seen from Raj's bills, there is almost no substantial sums of expenditures, so how he can avoid to 'maxed out ' and reasonable use the credit card, there are several suggestions: First, to keep the booking of every spending and the amount (this also