Personal finance class group case study project slides 12-11


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2011 Personal Finance class case study presentatioon as a story book.

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Personal finance class group case study project slides 12-11

  2. 2. Once upon a time there was a youngcouple that were encountering a very serious financial crisis.
  3. 3. Bob, 31 and Pina, 28 have had a negative net worth since they were both in college. This iswhere they met and fell madly in love.
  4. 4. When they got married they received a generous gift of$10,000 that they decided to put into a savings account with a 2.5% interest rate. This is their only large form of liquid assetswhich leaves them in a very tight bind!
  5. 5. “Bob, we need to talk.” Pina said one day at the dinner table. “Igot laid off. How are we going to pay off our debt now?” “Honey, we are S.O.L.!” Bob replied. “No! We just need to sit down and figure our strengths and weaknesses in the form of a t- chart. Then we will figure outwhat we need to do,” Pina said in an attempt to comfort her husband.
  6. 6. Strengths Weaknesses1. We both have college degrees 1. We live paycheck to paycheck.2. We have $10,000 in savings 2. Most months we have a hardand have already started a time paying the minimum401(k) plan with Bob’s work. payment on our 9 credit cards.3. We have $40,000 worth of 3. We have a negative netassets between our accounts worth, with $47,800 worth ofand personal belongings. debt.4. Bob earns $42,000 a year 4. Pina has been laid off! Oh no!5. We have health insurance 5. We have no disability, life orthrough Bob’s work. renters insurance.6. We carry a 100/300/50 6. We don’t pay attention toliability on our cars. how much they spend per month.7. We will always have our 7. We are clueless! Where dolove! we go from here?!
  7. 7. …Divorce?!
  8. 8. Instead Bob suggests going to a financial planner.
  9. 9. The next week Bob and Pinawent to go see Jane Doe, the best financial planner in their area.When they got there they showed her the t- chart and explainedtheir situation. Most importantly they stressed their desire to payoff their debt quickly so that they can buy a new car and start to think about buying a house and having a baby.
  10. 10. “I can see why you came to me. But you are lucky because youguys are young! You have time on your side so don’t panic!” Jane Doe said. “Really? That is great news! So what can we do to get us on the right track?” Bob asked“First things first, you need to set specific financial goals. This means it needs to be realistic, in measurable terms, have a time frame and identify actions that need to be taken,” Jane said.
  11. 11. “Then you need to organize yourfinancial records. This will help you keep track of everything, including what you are spending,” Jane said. “It would also be helpful to make a spending plan.”
  12. 12. What you should have in your spending plan: You need to make sure you create an emergency fund. This is super important incase something unexpected happens You need to calculate all your fixed expenses And you also need to calculate all your variable expenses.
  13. 13. “As for youroverwhelming debt… mysuggestion would be topay off the high interestearning debts first. Thiswill probably be yourcredit card bills. I woulduse your savings to pay itback quicker sinceinterest is going to workagainst you. If you let themoney sit in savings onlyearning a small amount ofinterest you will actuallybe losing money becauseyou will be paying more ininterest to the credit cardscompanies,” Janediscussed.
  14. 14. “You had mentioned earlier thatyou wanted to look into way toaccelerate repayment. Here is agreat website that can help you, This will giveyou different payment plans inorder to repay bills faster and savemoney on interest,” Jane advised. “I would also look and make sure that you are getting the lowest APR you can find since you are only paying the minimum right now. Try to pay more than that even if it just a few extra dollars a month because it adds up,” Jane continued.
  15. 15. “Just take a look at this creditcard smarts calculator. It isamazing to see just how muchyou can save by paying morethan the minimum,” Janeexclaimed! “Wow we really need to start using this!” Pina said in pure excitement. “If we pay only $100 more a month we can save almost $4,000 in interest!”
  16. 16. “My next piece of advise is that you really need to get disability insurance and a small life insurance policy. Bob if something happened to you where you couldn’t work what would you do? You would have no income and that would be a devastating issue,” Jane said. “Yeah I never thought of it in that way but you are right Jane,” Bob said after considering the question.
  17. 17. “Now Pina, what if you dietomorrow. Would Bob be able tohandle your financial situation byhimself? I’m going to take a wildguess and say no. So you shouldlook into getting a small lifeinsurance plan. You don’t needto go crazy because you don’thave any children but you doneed enough so that Bob cancover all the costs and still be ok,”Jane explained.
  18. 18. “You are on the right track withputting 3% of Bob’s income intohis companies 401(k) plan. Thisis really going to help you in the future. Just take a look at this calculator,” Jane said as he hands over the Retirementcalculator. “That is roughly $25 a week so at this rate when you are 65 you will have roughly$144,000 saved in your 401(k)!” Jane said.
  19. 19. After everything is in order: “After you have an emergency fund, and have paid back your debt, and have insurance, and have a retirement fund, then it is time to invest!” This is Jane’s favorite part to talk about. “My suggestion is it invest in mutual funds. They give you a diverse portfolio and a fund manger takes care of picking the bonds and stocks so it is less hassle for you.”
  20. 20. “Well that is all the time wehave for today,” Jane said. “Butlets make another appointmentso we can continue helping youout of a financial crisis and onthe road to success!”“Thank you so much!” Bob andPina exclaimed.They left feeling confident thatthey had the tools to get theirfinances on the right track.
  21. 21. In the end Bob and Pina got their financial life settled. They usedthe knowledge and tools that Janegave them and got themselves out of debt. They have since purchased a home and have started a family. Pina has found another job which has helped a lot. They are now on their way to becoming millionaires!
  22. 22. And they lived happily ever after!