Davids and Jennifers Financial Situation - Case Study Example

Finance Case Study Name Course Instructor College Date of Submission Plenary: Assumptions This report is prepared under the assumption that the year under consideration is coming to a close. Assume no expenses have been paid. Assume David and Jennifer has just earned their incomes each plus their income from joint ventures. Current Financial Situation This section will address David’s and Jennifer’s financial situation individually as well as their joint financial situation. This will capture current incomes and savings, current expenses and obligations, and net incomes along with the future implications of their current situation. Incomes and Savings David David has a single source of income (IT business) from which he rakes in $85,000 per year. His savings include $65,000 cash Self Managed Superfund, a $10,000 term deposit. Therefore, at present, David has a total financial standing of $160,000. Jennifer Jennifer is lucky to be employed from where she earns and enviable annual salary of $135,000. She also has savings in a Capital Guaranteed Fund worth $167,000. Her gross financial status amounts to $302,000 Joint Both David and Jennifer own several assets that are; A home, currently valued at $950,000 A $20,000 savings for emergencies Rent income amounting to $13,260 They own a Seaside Town Investment Unit valued at $215,000 Total joint value is $1,198,260 Expenses and Obligations David David is expected to pay his income tax that amounts to $19,397 His Self Managed Fund will cost him a total of $10,850 Total expenses equal to $30,247 Taking care of his younger brother Jennifer Jennifer has to remit tax on her salary amounting to $37,897 Her Capital Guaranteed Fund will cost her $10,000 Total expenses equal to $47,897 Joint Together, David and Jennifer are expected to; Pay their kids school fees amounting to $65,000 Mortgage costs equalling to $70,740. Salary to the agent managing their Seaside Town Investment Unit of $928.20 Interest on Line of Credit totalling to $105,090 A minimum credit card charge of $1,275.77 Total joint expenses equal to $243,033.97 Net Income David: He has a net income of $129,753 Jennifer: She has a net income of $254,103 Joint: Their net joint venture is equal to $955,226.03 Future Predictions From the information above, David and Jennifer individually and jointly appear to be in a stable financial position which can enable them to sustain themselves and cater for their expenses. Investment Goals David and Jennifer exemplify a simple life as they do not concentrate much on lifestyle matters apart from catering for the basic needs that include their housing and school fees for their kids. They earn modest income that is able to support them through these responsibilities. In addition, David and Jennifer are keen about tomorrow as they have taken a step to invest their monies. However, they still are left with a large portion of cash which can further be invested. As regards the investment option David is being pulled into, I propose that it be rejected for the reason that his financial situation as it is may not accommodate taking an extra loan facility as it will increase significantly the amount of loan repayments that is not financially healthy. In my view, it would be appropriate if they diversified their investments rather than concentrating on funds investment. These investments will be supported by their incomes or, since they are in a sound financial situation, they could borrow the money. However, at the moment they are repaying several loans. An extra loan would be a burden to them. Therefore, I would recommend that they commit to increase the amount of monies that they save. This may further be achieved through transferring to monies to a lower-rate credit card. Some credit cards provide customers with a 0 percent interest rate on balance transfers over a specified time. The money obtained may ultimately be invested in; Term Life Insurance: This is a good long term investment goal as it offers returns and money catering for eventualities. This could take up to $200 a month. Fixed deposits would also be nice to invest in. May take up to &12000. Enhance their investments in respective funds. They could boost the invested amounts at 3 percent per year. IT business after-tax yearly income to go up by 5 percent every year. Investment Budget In order to achieve the investment goals, a budget comes in handy to make sure that funds are not overspent on some items thereby leaving less or no money to invest in other options. The following list provides amounts budgeted for each activity (assuming that interest rates and tax rates do not change); School fees $65,000 per year Mortgage $71,000 per year Credit card charges $25,000 per year Interest payments $18,000 per year Salary payments $600 per year Household expenses $10,000 per year Joint account savings $21,000 per year Emergency fund $12,000 per year School fees investment fund $40,00 per year Investment Implementation To be able to attain the investment goals there is need for David and Jennifer to increase their level of savings. This could be partially achieved by shortening their mortgage loan repayment as well as line of credit repayment periods. Therefore, at present, conducting any additional investment would not be successful. Once the debts are settled there will be more cash available to undertake the investment options outlined above. However, with the current financial muscle, David and Jennifer need to invest in school fees for their three young kids. This will ensure the kids receive their full education and become established with no difficulties. Both are over forty years, investment in retirement would be very appropriate at this juncture. Since current investments are local, it would be relevant to consider investing in other regions due to economic reasons such as recession in certain countries. How to Improve Financial Situation In order to improve their financial situation, it could be necessary for Joe and Carol to do some financial organization. Getting their funds in order along with categorization their financial matters is also important. A number of measures that can help to improve their financial situation include: Reducing or Reorganizing Expenses Joe and Carol should analyse their expenses and settle on which expenses they may well trim down or reorganize. Some options include: placing a delayed or intermittent imbursement plan for bigger expenses, changing insurance companies, banks or traders for improved arrangements, adjusting the amount along with the timing of stock purchases to correspond with higher income flow periods as well as adopting cheaper options for consumables. Sell Assets Selling superfluous assets, such as the two cars owned by Joe and Carol, is a superior way to obtain cash and cut expenses. Besides, leasing some assets would help stretch the cost over a longer timeframe. Debt Consolidation The duel should examine their current debt and spot if they can be able to merge it entirely into a stumpy interest as well as low payment product. Whilst taking into consideration paying back current debt engagements, they ought to ensure they shop in the region to spot whether they may possibly land an improved arrangement somewhere else. Investing their Own Funds Both Joel and Carol should spend their own funds or that of their family or associates as it possibly will engender a superior likelihood of obtaining investments. Re-evaluate Finances Habitually It is vital to restraint oneself to reviewing your investments regularly, so as to be able to reserve some moment no less than one time every month to verify banks statements and make sure your funds are producing some yield. Joe and Carol need to ensure are always enjoying superior rates on their savings, terminating any straight debits not required anymore plus inspecting whether any insurance policies are due for replenishment, in order to hunt for the finest deals in the market. Monitor the Credit Card It is imperative to apply for a cut in credit card interest rates. Joe and Carol may think about switching credit cards with a zero percent balance transfer plus request if they can cut their rates so as to remain as clients. Risks Interest rate risk is the probability that a security's price will vary due to a change in interest rates. For example, a bond's price goes down as interest rates go up. Market risk covers the danger of monetary loss owing to variations in market stock prices. The worth of investments can go down due to financial changes or other occurrences. Professionals Joe and Carol may seek financial assistance by engaging an accountant or a business advisor as regards their financing requirements and choices. The professionals possibly will propose additional channels of getting better their cash flow position or suggest alternatives for sourcing financial support. Read More