Personal finance class group case study project slides 12-11

A S T R U G G L E T H R O U G H Y O U N G A D U L T L I F E

W R I T T E N B Y :

J E S S I C A Q U A Z Z A

P A U L A K R A U S E

S A M A W A D

The Financial Crisis of Bob and Pina Ing:

Once upon a time there was a young couple that were encountering a very

serious financial crisis.

Bob, 31 and Pina, 28 have had a negative net worth since they were both in college. This is

where they met and fell madly in love.

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 assets

which leaves them in a very tight bind!

“Bob, we need to talk.” Pina said one day at the dinner table. “I

got 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 out

what we need to do,” Pina said in an attempt to comfort her

husband.

Strengths

Weaknesses

1. We both have college degrees 1. We live paycheck to paycheck.

2. We have $10,000 in savings and have already started a 401(k) plan with Bob’s work.

2. Most months we have a hard time paying the minimum payment on our 9 credit cards.

3. We have $40,000 worth of assets between our accounts and personal belongings.

3. We have a negative net worth, with $47,800 worth of debt.

4. Bob earns $42,000 a year 4. Pina has been laid off! Oh no!

5. We have health insurance through Bob’s work.

5. We have no disability, life or renters insurance.

6. We carry a 100/300/50 liability on our cars.

6. We don’t pay attention to how much they spend per month.

7. We will always have our love!

7. We are clueless! Where do we go from here?!

…Divorce?!

Instead Bob suggests going to a financial planner.

The next week Bob and Pina went to go see Jane Doe, the best

financial planner in their area. When they got there they showed

her the t- chart and explained their situation. Most importantly they stressed their desire to pay

off their debt quickly so that they can buy a new car and start to

think about buying a house and having a baby.

“I can see why you came to me. But you are lucky because you

guys 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.

“Then you need to organize your financial 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.”

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.

“As for your overwhelming debt… my suggestion would be to pay off the high interest earning debts first. This will probably be your credit card bills. I would use your savings to pay it back quicker since interest is going to work against you. If you let the money sit in savings only earning a small amount of interest you will actually be losing money because you will be paying more in interest to the credit cards companies,” Jane discussed.

“You had mentioned earlier that you wanted to look into way to accelerate repayment. Here is a great website that can help you, www.powerpay.org. This will give you different payment plans in order to repay bills faster and save money 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.

“Just take a look at this credit card smarts calculator. It is amazing to see just how much you can save by paying more than the minimum,” Jane exclaimed!

“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!”

“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.

“Now Pina, what if you die tomorrow. Would Bob be able to handle your financial situation by himself? I’m going to take a wild guess and say no. So you should look into getting a small life insurance plan. You don’t need to go crazy because you don’t have any children but you do need enough so that Bob can cover all the costs and still be ok,” Jane explained.

“You are on the right track with putting 3% of Bob’s income into his companies 401(k) plan. This is really going to help you in the future. Just take a look at this

calculator,” Jane said as he hands over the Retirement

calculator. “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.

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.”

“Well that is all the time we have for today,” Jane said. “But lets make another appointment so we can continue helping you out of a financial crisis and on the road to success!” “Thank you so much!” Bob and Pina exclaimed. They left feeling confident that they had the tools to get their finances on the right track.

In the end Bob and Pina got their financial life settled. They used

the knowledge and tools that Jane gave 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!

And they lived happily ever after!