Investment Strategy: Budgeting And Cash Flow Essay


Describe about the Investment Strategy for Budgeting and Cash Flow .



Jake Sampson has made all the arrangements for money to ark out his living. He is currently working as a media manager for an accounting firm. He is performing the job of editing the blogs on the investment strategies. He has made the financial goal of buying a home worth $50,000 in the coming 12 months. He is also planning to drop this idea and made investment in the stock market. He consider himself as a person who can take high risk and thus based on the same he consider the option of investment in the stock market is preferable for him. He is currently planning to use his cash flow statement and balance sheet to figure out whether he can plan out his working to accomplish its goals. The spending that has been made by Jake is limited and is within the mark and this let him save his money for meeting out his future goals. He hasn’t made any substantial investment in the assets apart from normal utilities. He although has brought a 2012 Ford Focus ST, three years ago.

Budgeting and Cash Flow

Jake has planned to purchase a house in the west for $50,000. Looking at the financial position and the cash flow statement of Jake, it looks a bit difficult for him to make all the necessary arrangements to buy the property worth $50,000 in the coming 12 months. Looking at the financial position of Jake he looks sound being he holds wealth worth $112,800. But most of the assets that have been held by him are in the form of long term assets. He requires $50,000 worth of cash for the purpose of buying the property. From looking at the balance sheet of Jake he holds $12,000 in his saving bank account that provides interest at the rate of 1.75% per annum. The amount in the saving account is not sufficient enough to meet out the cost that Jake is expected to incur on purchase of the property at west. Further looking at the cash flow statement of Jake, he is earning a salary of $6500 after tax. From the salary so earned he is saving $1,000 every month. Being, Jake is expected to purchase the property in next 12 month thus, he is expected to save $12,000 in the next 12 months. Thus if he continues to save the similar amount i.e. $1,000 every month, the balance in the saving account will increase to $24,000which is not sufficient to meet out the requirement for the purchase of property. Thus, considering the current financial position of Jake, he is currently not in track for buying out the property.

Further, in order to make necessary arrangement for purchase of property, Jake is required to make necessary updation in the monthly budget. He is required to curtain his entertainment and holiday expenses. Further he can reduce the clothing expenses to 50% to what he is spending currently.



Amount balance in the saving bank account

$ 12,000

Month amount saved in the bank ($1,000*12)

$ 12,000

Saving in the entertainment expenses ($400*12)

$ 4,800

Saving in the holidays expenses ($150*12)

$ 1,800

Saving in the clothing expenses ($200*12)

$ 2,400

$ 33,000

Currently the balance is even after making the above adjustment is not enough to make arrangement for the property. From the salary that has been earned by Jake a major portion is spent on house rental amount and in making the car payment installment which in total makes up 40% of the total salary which is too high. In order to purchase the property, Jake is expected to save $3100 every month but considering the fixed expenses for Jake, it won’t be possible for Jake to purchase the same. Jake in this case can take a loan for the purchase of the property. He can keep the installment near to $1600 which is the current rental payment by him. This will not put any additional burden on him and he could fulfill his dream.

Looking at the finance option available for Jake, he has made considerable investment in the Car super and Rest Super fund which would provide him enough funds at times of retirement. However he holds just $12,000 in his saving bank account which is not sufficient to meet out the purchase requirement for the property he is willing to purchase in the west. In this scenario he has two options, one is either to curtain his expenses which looks a bit difficult as looking at the salary which he is getting he is spending 40% of his salary in fixed expenses and he is saving $1,000 per month. Further the balance he is spending on his daily needs and other utilities. Thus in that case, the best option available with him is to take loan for the balance amount and pay the same in installment. As once he would be able to buy the house, he won’t be paying any rental expenses and this amount he could utilize for paying out the installments.

Research and investment recommendation

In this case, Jake has made a financial goal of buying a home worth $50,000 in the coming 12 months. He is also planning to drop this idea and made investment in the stock market. He consider himself as a person who can take high risk and thus based on the same he consider the option of investment in the stock market is preferable for him. Looking at the current scenario and with the better leverage with the shares, it is preferable to make investment in shares rather than in buying a property. However, if we ignore the leverage part then, there are few advantages attached which is makes investment in property as a better option rather than in shares. For investors who are less risk prone prefer the prior option better than the latter in all means. The investment in property is a tangible investment. On could see it, feel it and touch it. On the other hand, the investment that has been made in stocks are not tangible, one can only own it but cannot see it and touch it. In case of investment in property, the person is in total control of the property as he owns it completely. On the other hand, in case of investment in shares, the investor stays at the mercy of the management. You are been holding the stocks and fall under the minority section and puts total faith in the management of the company. The management of these companies commits fraud and enters into certain acquisitions and does not care for the investment that has been made in by the investors. It’s only the investor who can take care of their funds in a better way than anybody else. The volatility aspects in the investment property are on a lower scale as compared to the investment made in the stock market. Any change that has been taken place in the economy impacts the share market on a large scale as compared to real estate. The investment that we make in the property is considered to be more isolated and protected than as compared to the shares. The investment in property is also considered to be a hedging strategy against the inflation that has been taking place in the market. In the long run, it has been proved multiple times that increase in the real estate prices tends to go along with the inflation rates. For example: If their increase in the inflation rates then the owner of the property to be in line with the increasing inflation rates can increase the rent on the property. On the other hand, the investments in shares do not follow the inflation that we cater in the first option. Every investor who is planning to make and investment or has made some or the other investment is likely to calculate the profit that he has earned on the investment. In case of investment property, the above calculation is relatively easy as compared to investment n shares. For determining the profit on the shares one needs to rely on the data that has been provided by the company via multiple reports. Further there are few tax benefits as well which are attached to the investment property which is not there in case of investment that we make in shares. From the perspective of tax, in case a person makes investment in a property, the cash flow will be tax free. Further he can claim deduction for the property taxes, depreciation on the asset, and mortgage interest from the income.


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