Good Example Of Essay On Choices & Compromises

Type of paper: Essay

Topic: Money, Budget, Banking, Deficit, Goals, Savings, Finance, BMW

Pages: 4

Words: 1100

Published: 2020/11/15

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Introduction

In this report I will present my goals for 3 time horizons: short-term, mid-term, long-term. I will also present my cash budget for my first working year and analyze whether it allows me to do what I have laid out in my goals list. Then I will discuss the effect of my budget on my net worth for next year, answer to the questions asked and conclude.

Discussion of goals

In worksheet 1, I have laid out 5 goals for myself. The first goal is to drive a BMW sedan. I am a car enthusiast and really like BMW and Mercedes cars. I consider a car important, especially in a region like Texas and for someone living outside town. This goal is purely related to my taste. I also like getaways and there is no better way to do this than by taking well-deserved holidays: I will thus go to Florida. I estimate these two goals to cost roughly $9000. This may seem a lot but I am a rather present-oriented person and thus find more utility in decisions like these one than in long-term planning and delayed gratification.
My mid-term goals are more serious and include opening a $5000 brokerage account and setting up a $10000 emergency fund. I believe the stock market is a great way to build equity over time and thus I would like to reach this goal by 2019. As for the emergency fund, it could be used for any unforeseen circumstance – if I do not need it, I will be able to use the funds for a down payment or for travelling.
Finally my long-term goal is to travel the world for a year. I believe $25000 to be a sufficient amount although this is outside the scope of this work.

My gross income of $50000 nets me a little more than $2800 per month. While this amount is enough to live comfortably I had to make decisions to reach my goals. I decided to take the lowest priced accommodation, because I do not mind using my car to go party downtown. This factor was not important for me. I can however afford to get a BMW sedan directly with a loan, and can realize my first goal for a little more than $600 per month. Put in perspective, this is approximately what I would have had to spend more to live downtown; clearly not a situation I favor. I decided to keep other variable costs low, because clothes and food are also not items which provide me tremendous satisfaction. I need them but would not want to spend too much of my extra income on them.
After paying my student loan back, I also decided to keep appliances and furniture low for the same reasons mentioned before: the place I live in is not the most important factor for me and I prefer going out, driving a nice car and visiting new countries rather than buying a TV and nice furniture – I do not spend much time home!

Results of the plan

After taking care of all expenses, this designed budget shows a cash deficit of $2142 for the whole year. The first month has a cash surplus of $829, which is due to my signing bonus. Most other months end with a cash surplus of $30. However, the months of April and October both show a cash deficit of $570 which is due to my two $600 insurance payments. At this point my budget would approximately balance, but the $2000 dollars I pay to go to Florida in September create virtually all the cash deficit of the year. Overall I am satisfied with the plan and still want to enjoy Florida now – this raises the question however of how will this deficit be financed. The advantage of the plan is that I get to realize my goals and increase my happiness, the drawback however is that I create a deficit which means that such a situation is not sustainable with my current earnings.

Solvency & savings ratio

With this budget, I am not staying solvent because I am running a budget deficit of $2000. However, I can finance this deficit using my money market deposit account and I will still be able to service my student loans payments. As a result my savings ratio is nil because I will not put any funds aside this year, however I believe the holidays that create virtually all the deficit will bring “happiness equity” and lifetime memories.

Increase in liquid assets versus investments

As previously discussed I will not increase my net worth this year. This budget creates a decrease in my liquid assets. Would I have designed a balanced budget, I would have allocated my savings the following way:

70% of the savings going towards liquid assets (cash deposits and short-term accounts) in case of an emergency

30% of the savings towards an IRA or long-term savings account, to benefit from compounding and create wealth for the long-term
Key learning outcomes about planning
I have learned two main points from this work. Firstly, I have learned to properly evaluate the effect of fixed versus variable costs on a budget. Fixed costs are more risky because they cannot be adjusted during months where I have a budget deficit (for holidays and insurance payments in this case). While variable costs can generally be delayed or squeezed, fixed costs take away the bulk of my earnings and I cannot change that rapidly: as such I realized that fixed costs need particular attention when working on a cash budget.
Secondly I have learned to analyze outcomes and go with the one providing me the best utility. Putting in perspective what the most expensive flat is costing me was insightful (it is actually a tradeoff between having a flat downtown or having a nice flat outside of town but riding a BMW). I thus think a budget is actually a good way to make smart tradeoff decisions and allocate my money where it will serve me the best. It may seem easy to do but looking at figures on a yearly perspective shows a difference picture which I have found helpful.
Summary

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WePapers. (2020, November, 15) Good Example Of Essay On Choices & Compromises. Retrieved December 01, 2021, from https://www.wepapers.com/samples/good-example-of-essay-on-choices-compromises/
"Good Example Of Essay On Choices & Compromises." WePapers, 15 Nov. 2020, https://www.wepapers.com/samples/good-example-of-essay-on-choices-compromises/. Accessed 01 December 2021.
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"Good Example Of Essay On Choices & Compromises." WePapers, Nov 15, 2020. Accessed December 01, 2021. https://www.wepapers.com/samples/good-example-of-essay-on-choices-compromises/
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"Good Example Of Essay On Choices & Compromises," Free Essay Examples - WePapers.com, 15-Nov-2020. [Online]. Available: https://www.wepapers.com/samples/good-example-of-essay-on-choices-compromises/. [Accessed: 01-Dec-2021].
Good Example Of Essay On Choices & Compromises. Free Essay Examples - WePapers.com. https://www.wepapers.com/samples/good-example-of-essay-on-choices-compromises/. Published Nov 15, 2020. Accessed December 01, 2021.
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