Question

answer question 1,2 and 3

REAL LIFE PERSONAL FINANCE YOU BE THE FINANCIAL PLANNER While at some point in your life you may some flexibility in his short-term finances use the services of a financial planner, your since he has three months of living expenses personal knowledge should be the founda- in a savings account. However, three months tion for most financial decisions. For each can go by very quickly," as Patrick noted. of these situations, determine actions you Situation 3: Nina Resendiz, age 23, recently might recommend. received a $12,000 gift from her aunt. Situation 1: Fran and Ed Blake, ages 43 She is considering various uses for these and 47, respectively, have a daughter who unexpected funds, including paying off is completing her freshman year of college credit card bills from her last vacation or and a son three years younger. Currently, setting aside money for a down payment they have $34,000 in various savings and on a house. Or she might invest the money investment funds set aside for their chil- in a tax-deferred retirement account. dren's education. With the increasing cost Another possibility is using the money of education, they are concerned about for technology certification courses to whether this amount is adequate. In recent enhance her earning power. Nina also months, Fran's mother has required exten- wants to contribute son sive medical attention and personal care homeless shelter and a world hunger relief assistance. Unable to live alone, she is now organization. She is overwhelmed by the a resident of a long-term care facility. The choices and comments to herself, "I want to cost of this service is $4,600 a month, with avoid the temptation of wasting the money annual increases of about 5 percent. While a on impulse items. I want to make sure I use major portion of the cost is covered by her the money on things with lasting value." Social Security and pension, Fran's mother is unable to cover the entire cost. In addition, the Blakes are concerned about saving for Questions their own retirement. While they have con- 1. In each situation, what are the main sistently made annual deposits to a retire- financial planning issues that need to be ment fund, current financial demands may addressed? force them to access some of that money. 2. What additional information would Sinuation 2: "While I knew it might happen you like to have before recommending someday, I didn't expect it right now." This actions in each situation? was the reaction of Patrick Hamilton when 3. Based on the information provided, his company merged with another business along with Exhibit 1-1 and the financial along with Exhibiti and moved its offices to another state, result- planning process, what actions would ing in his losing his job. Patrick does have you recommend in each situation?

Answer 1

1. Main financial planning issues that need to be addressed are as follows,

Situation 1:

- Money Management -  Money saved for daughter's education may not suffice as the current cost of education is going up and will require an inflow into the fund set aside for it.

- Current cash flow requirements apart from their living expenses, which goes into Fran's mother old age home expenses.

-Planning for Retirement- The couple is struggling with their saving, the funds of which they plan to use after retirement.

Situation 2:

In this situation Patrick has lost his job, and as a result a steady cash flow. Although he as savings, but that will cover his expenses only for 3 months, which is a very short duration.

Situation 3:

The main planning issues here are her lack of plans for investment and the debts, both long and short term in the form of credit card bills and home loan respectively. She is in the young age bracket and can invest in long term equity asset class, but she is confused between whether to spend or whether to invest.

2. Additional information required for each situation

Situation 1:

a) How long before retirement they would like to work?

b) What is their tax bracket?

c) Do they have any debt that can hamper their risk taking ability?

Situation 2:

a) What is his tax bracket?

b) What are the current job prospects available in the city or does he needs to relocate?

Situation 3:

a) What is her tax bracket ?

b) What is the amount of debt?

c) Her risk taking ability and willingness.

3.(The question does not contain exhibit 1-1, unable to answer the last sub-question)