In a recent month, the Chan family had a budget deficit, which is something they want to

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Question:

In a recent month, the Chan family had a budget deficit, which is something they want to avoid so they do not have future financial difficulties. John and Jenny Chan plan to discuss their situation with Kenny after dinner this evening. They provided their spending list as below:

Current information

Rent

Electricity and water

Telephone & wifi services

Food (at home)

Food (outside home)

Traveling

Entertainment

Insurance

Clothing

Personal, gifts

Donations 500 Savings 350

Monthly income 28,000

While at work, John was talking with his friend Kenny. Kenny had been a regular saver since he was college student, starting with a small savings account. Those funds were then invested in various stocks and mutual funds. While in college, Kenny was able to pay for his education while continuing to save between $500 and $1,000 a month. He closely monitored his spending. Kenny realized that the few dollars here and there for snacks and other minor purchases quickly add up.

Today, Kenny works as a customer service manager for the online division of a retailing company. He lives with his wife and their young child. The family’s spending plan allows for all their needs and also includes regularly saving and investing for the children’s education and for retirement.

John asked Kenny, “How come you never seem to have financial stress in your household?” Kenny replied, “Do you know where your money is going each month?”

“Not really,” was John’s response.

“You’d be surprised by how much is spent on little things you might do without plan,” Ken responded.

$9,500 1,200 675 3,850 3,300 4,100 3,250 1,250 2,000 1,850

“I guess so. I just don’t want to have to go around with a notebook writing down every amount I spend,” John said in a troubled voice.

“Well, you have to take some action if you want your financial situation to change,” Kenny countered.

Required:

Based on the information provided, identify any THREE possible reasons the Chan family created the budget deficit situation.

Part II

Peter, 27 years old, is currently a junior accountant in a listed company. He makes his MPF contribution in Growth Fund since he joins the company. In April 2020, he received his MPF annual benefits statement and noticed that his contributed fund suffered a loss by 28%. He does not know why there is a loss and starts to consider switching his MPF contribution to conservative fund to protect his capital.

Required:

Advise Peter if it is appropriate for him to switch to the conservative fund.