You are preparing a personal financial plan based on one of the three fact patterns provided. You will prepare a balance sheet, a cash flow statement, and work through three financial issues.
Plan: Young married couple with new baby
Take the information as given. Do not change any data. You may, however, add any additional information to enhance the fact pattern if you believe it is relevant for the financial plan.
– Husband works as a mid-level manager at a salary of $54,000
– Wife worked in banking at a salary of $40,000 and is currently on maternity leave to care for the couple’s new baby
– Couple owns small investment account valued at approximately $60,000
– Husband has 401(k) plan at job and has accumulated 67,000
– Wife has 401(k) plan as well and has accumulated $44,000
– Couple has $3,200 in checking account
– Couple has $23,000 in savings account
– Wife has $18,000 in savings that she inherited from her father when he died
– Husband has four year old Honda Civic in fairly good condition
– Wife has six year old Toyota Corolla
– Couple is considering selling Toyota to purchase or lease a van
– Couple is about to close on a new home. They are paying $20,000 at the sale and are looking at a $180,000 mortgage for 30 years at 5% interest. So, current value of home is $200,000
– Wife is considering resigning from her job to stay at home with the new baby. She has one more month of maternity leave. Couple has a slot held for them at daycare at the rate of $250 per week when wife’s maternity leave is over.
– Couple has one credit card that is paid off each month, the couple uses it for shopping and other expenses throughout the month.
TO DO:
1. Prepare a personal balance sheet
Remember that you may add to the information to enhance the fact pattern.
You may want to consider adding assets and/or debt that were not mentioned.
All items on the balance sheet must be explained.
2. Prepare a cash flow statement
Remember that you may add information to enhance the fact pattern.
You may want to consider adding income or expense items.
All items on the income statement must be explained.
3. Employment: Compare current job with resigning
Prepare a worksheet to show comparison
Recommend action to take – keep current job or stay-at-home – why/EXPLAIN your choice: Show the numbers to support your choice
Write about financial and nonfinancial advantages and disadvantages
Remember that you may add to the information to enhance the fact pattern.
You may determine specifics about work environment as compared to home environment
You may determine specifics about career issues as compared to family issues.
4. Credit: Evaluate purchase or lease of new van
Prepare a chart to show costs to keep current car, cost to buy, and cost to lease.
Recommend action to take – keep, buy, or lease – why/EXPLAIN your choice: Show the numbers to support your choice
Calculate monthly car payments and show work
Remember that you may add to the information to enhance the fact pattern.
You may select the make and model of the new van and determine the specifics about lease and/or purchase
5. Housing: Evaluate current mortgage arrangements
Prepare amortization schedules to compare 30yr mortgage and 20yr mortgage
Recommend action to take – determine which mortgage term they should select – why/EXPLAIN your choice: Show the numbers to support your choice
Determine what they can afford keeping car situation in mind when determining this
Remember that you may add to the information to enhance the fact pattern.
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Part One – Cover Page – Provide your name, your choice of young professional, divorced parent, or married couple, and you should have a brief overview of the family on this front page as well.
Part Two – Balance Sheet – EVERY PLAN WILL INCLUDE A BALANCE SHEET (Examples of balance sheets are in the textbook)
— A Balance Sheet shows your assets, liabilities, and net worth. Be sure to present this in the proper format. Be sure your balance sheet balances. Review textbook and lecture notes. This is one page
— You will need to compute the value of some items based on information in the fact pattern. Show all of your work and explain how you arrived at the value for every item. You must show all of your work and provide explanations for all numbers/values. Be sure you are only including items that should be included on a balance sheet and are not including other items such as expenses which would be included on the Cash Flow Statement. This should be 1-2 pages.
— A final page should be an analysis of the balance sheet. What is net worth? Is it positive or negative? What should be the plan moving forward based on this? This should be one page.
Part Three – Cash Flow Statement – EVERY PLAN WILL INCLUDE A CASH FLOW STATEMENT (Examples of cash flow statements are in the textbook)
— A Cash Flow Statement shows your income and expenses. Be sure to present this in the proper format. This is 1 page
— Be sure to include missing items that would be appropriate for the family you select. These may include groceries, car costs, entertainment, and other similar items. Be sure to explain how you arrived at every cost. Show all your work. Be sure you are only including items that should be on a cash flow statement and are not including other items such as assets and liabilities which are included on the Balance Sheet. This should be 1-2 pages
— A final page should be an analysis of the cash flow statement. Should some expenses be reduced? Did you compare percentages? What should be the plan moving forward based on this statement? This should be one page.
Part Four (Three sections) – Recommendations for Three Issues with supporting documentation – There are three sections to this part of the plan:
1). Section on employment issues;
2). Section for credit issues; and
3). Section on housing issues.
Show comparisons. Evaluate costs. Study issues. Show your work. Be thorough.
Each of these sections should include a cover sheet that has the following sentence at the top and a paragraph or two to answer the statement:
1.) My recommendation for the employment issue is…… (followed by several paragraphs explaining your recommendation and your reasons)
2). My recommendation for the credit issue is…… (followed by several paragraphs explaining your recommendation and your reasons)
3). My recommendation for the housing issue is…… (followed by several paragraphs explaining your recommendation and your reasons)
Then attach all work and supporting documentation that shows how you determined which choice was best and why.
