Essay about Financial planning and management considerations

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Final Paper – Description
Financial planning and management considerations change depending on the stage and
circumstances of a person’s life. What is appropriate financial management or planning for a single
mother with two children is not the same as for an elderly widow. The family scenarios provide an
opportunity to consider financial planning from a variety of perspectives besides your own.
o This final paper consists of three parts. Answer each part separately, following the
instructions. In part one, you are introduced to the profiles and financial information
for an elderly widow, a single mother with two children, a young married couple with
a baby, and a single college girl. The next two parts of this final paper update each
family’s circumstance that affects its financial decisions.T
o Regarding Andrea Gorman’s situation, the divorce is final and negotiations with her
former husband are not an option. Avoid bringing her former husband into the
discussion.
o Regarding Julie Mills scenario, do not discuss what Julie’s parents and brother can
do; this case focuses on Julie Mills and her financial situation and what she needs to
do to work on it.
The final paper is three parts submitted as ONE document.
FAMILY SCENARIOS
Financial planning and management considerations change depending on the stage and
circumstances of a person’s life. What is appropriate financial management or planning for a single
mother with two children is not the same as for an elderly widow. The family scenarios provide an
opportunity to consider financial planning from a variety of perspectives besides your own.
Marie Flemming
BACKGROUND INFORMATION
Meet Marie Flemming from the Flemming Creek Ranch in Laramie
County, Wyoming. Marie is 77 years old. She has lived on the ranch
for most of her life, arriving at the ranch 55 years ago as the bride of Jake, a third generation rancher.
Marie loves the ranch and has always viewed the ranch life as a wonderful, rewarding life style in
spite of the hard work and limited income. After all, ranching was and is a way of life – not a business.
Marie is a widow, losing Jake to cancer five years ago. She has three children – Suzanne, 52, who
lives in Arizona and is a professional musician. Jake Jr., 51, is an accountant in Rapid City, SD.
Bonnie, shown in the photo with Marie, is 45 and lives on a ranch nearby. Marie has seven
grandchildren and five great-grand children.
Although life isn’t what it used to be when Jake was alive and well, things in general are okay for
now. Marie still lives on the ranch. She leases a large part of the ranch to another rancher. She
maintains a small garden in the summer months, producing enough vegetables to carry her through
the winter. Never one to be still, she operates a small home business with Bonnie, called Wyoming
Breeze Soaps. This enterprise produces handmade herbal soaps, which they make in Marie’s home.
The soap is cut by hand and individually wrap. They sell the soap in boutiques in Cheyenne and
Rapid City.
Marie has noticed that her arthritis is becoming worse. Although she has had it for several years,
until now, it hadn’t been too much of a problem. She hasn’t mentioned this to Bonnie or the others
yet because there is so much to do and she doesn’t want to bother her children with her complaints.
She intends to stay in her home for the rest of her life, so she is not about to start complaining about
a few aches and pains or changing the way she has lived. She also suffers badly from asthma and her
prescriptions have increases in price over the past two years.
Financially, Marie is feeling the pinch of diminishing income and rising expenses, particularly
medical, over the past few years. Marie and Jake had always lived prudently, but as is typical for
agricultural families, depended on credit to carry them through part of each year due to the irregular
income so common with cattle ranch operations. Marie took care of the home and worked as the
ranch bookkeeper so she did not qualify for Social Security. Jake had worked for the county
government part-time for about 25 years in addition to running the ranch, thus earning Social
Security. In addition, he had an individual retirement plan (called the Farmers Roth IRA) that
featured nondeductible contributions into the plan and tax-free withdrawals once he qualified to
withdraw the principal and earnings tax free. However, he had not calculated the amount of funds
they would need once they retired, and he had planned on working (and living) longer than he did.
Marie is concerned. According to a life expectancy calculator), she figures that she will live to about
87 years of age (based on her lifestyle, heredity, and other factors) and at the rate she is going, with
the arthritic pain and the asthma, she is concerned about how she is going to continue to live her
current lifestyle if she can’t keep her finances stable. The soaring prices of prescriptions and other
medical costs are such a concern these days. It’s all she hears about on the news and all she and her
friends talk about when they get together after church on Sundays.
Monthly Income and Expense for Marie Flemming
Monthly Income
Net income from pasture rent
1,150.00
Net income from WY Breeze Soaps Enterprise
120.00
Social Security benefits
782.00
Roth IRA
500.00
Total net Income:
2552.00
Monthly Expense
Note: Although some of Marie’s expenses are occasional or irregular expenses, she prefers to
amortize all expenses. She uses a modified envelope system of budgeting to make sure that she
maintains strict control of her household finances.
For more information about the envelope system of budgeting, see Chapter 3 in your textbook.
Note: Marie puts aside money into a savings account for an emergency fund.
Savings
Misc. medical care (appts., medicine, etc.)
Health Insurance
Prescriptions
Entertainment
Gifts
Clothing
Home and yard maintenance
Auto payment
Auto insurance, fuel, maintenance
Homeowner’s insurance
Property taxes
Utilities and telephone
Food
Memberships, dues, fees, tithes
Outstanding credit card balance
Ranch land maintenance
Miscellaneous expenses
Total Expenses:
300.00
150.00
250.00
350.00
50.00
30.00
40.00
120.00
0.00
80.00
150.00
37.50
98.00
200.00
120.00
115.00
350.00
0.00
2,440.50
Andrea, Amy, and
Dirk Gorman
Background Information
Meet Andrea Gorman and her two children, Amy (age 13) and Dirk
(age 10). Andrea just turned 42. She has been divorced for eight
years. At the time of the divorce, Andrea had an undergraduate
degree in Youth and Family Education and worked at a full-time
position teaching at a middle school.
A year after the divorce, Andrea moved her young family to Rawlins, Wyoming, to get a new start
on life. She worked at a restaurant for a year until a position with the University of Wyoming (UW)
Cooperative Extension Service as a Family and Consumer Sciences Extension Educator became
available. Andrea accepted the position with the understanding that she would complete her master’s
degree in Family and Consumer Sciences at the end of three years in order to keep her job. She spent
the next three years struggling to complete the degree. It was a difficult time for her – a single parent
of two young children trying to balance family, work, and academics. She traveled to the UW campus
in Laramie to attend a weekly graduate course each semester. She enrolled in several online courses
and attended courses at the UW Casper branch as well. The family lived in student housing at UW
for two summers while she attended summer school. She received a master’s degree with honors.
She still is an Extension educator in Rawlins.
Andrea is feeling good about their life. It has been a financial struggle, but things are looking up. She
recently got a raise. She has started a savings account and deposits money each month. She no longer
has to pay for childcare now that Amy is old enough to stay home with Dirk after school until Andrea
gets home from work. Each of the children has a paper route to earn extra money because Andrea
cannot afford to pay them much of an allowance. She has three credit cards but has requested that
the accounts be closed, and she is paying off the balances on each of them. Her short-term goal is to
pay off credit card #1 by the end of this year. Another goal is to pay off the other two next year.
Amy is active in sports (she already broke her arm this year), and choir and has started wearing
braces. She is thrilled since she found out that she might get a chance to travel to Boston and
Washington D.C. next fall with her school’s select choir. The total cost per student is $2,400. The
school requires that each family contribute 60 percent of the total cost for their child to participate.
Just this past year, Dirk started trumpet lessons at school. According to his teacher, he shows real
talent at a very young age. His teacher recommended that Andrea get him weekly private lessons
during this coming summer so that he doesn’t “lose his lip.” The only private lessons available in
Rawlins will cost $20 an hour. Andrea is concerned about how to finance Amy’s trip and Dirk’s
lessons. She feels that it would be a great educational opportunity for Amy to go on that trip with her
choir. The very thought that Dirk might have a musical future is something that she never would
have imagined until now, and she certainly wants to do everything she can to provide him with that
chance.
Andrea dreams of the day when her unsecured debt is paid off and she has saved enough money to
take the family on a trip. That day seems so far away. Recently, she started playing with the idea of
putting the cost of a family vacation on a credit card, even though she really wants to get out of debt.
Wouldn’t it be wonderful to take the kids to California to see the Pacific Ocean? On the other hand,
wouldn’t it be a terrific sense of accomplishment to be out of debt — finally?
Mark and Ann Proto
Meet Mark and Ann Proto and their 8 month-old son,
Justin. Mark and Ann are both 28 years old. Mark works
for a construction business andAnn is an assistant speech
therapist for the school district in Teton County, Wyoming.
Mark’s construction job pays quite well
duringthewarmmonthsbutthereare a couple of months when he searches for other part-time jobs to
fill the income gap. Ann worksfull-time nine months of the yearand takes the summer months off
to take care of Justin since childcareis so expensive. This way, shedoesn’t have to pay it for three
months. She has been thinking about returning to college to pick up summer courses over the next
couple of years sothat she can earn a master’s degree. However, Ann has put that particular goal
on hold for the time being – at least until Justin is a bit older.
The Protos have been married six years. They love the natural beauty of the Teton area. They
have enjoyed spending their money on outdoorrecreation and traveling around the western
states. Before Justin’s birth, they thought about buying a small trailer to use as a vacation vehicle
so that they could take several weeks off todrive the old Route 66, discovering and exploring
parts of the country along the way.
Housing costs in this area are extremely high, so they are forced to rent a small apartment that
seems to be getting smaller as they accumulate more baby furniture, toys, and other related
items. Complications at Justin’s birth put the Protos in debt with some expensive hospital and
medical specialist bills. Fortunately, Justin is doing well now; but they are feeling some anxiety
about being in debt. They have committed to not using their credit cards anymore and are
working on paying them off.
Like so many couples, the Protos have two incomes and are living from paycheck to paycheck.
Mark and Ann have started to bicker with each other and are concerned about what the financial
stress is doing to their relationship. They met with a debt counselor who cautioned them about
their debt load and has urged them to write down some realistic financial goals and set up a
personal financial plan that will give them some direction.
Recently, Ann read a United States Department of Agriculture annual report detailing the cost of
raising a child from birth to age 18. She wished that she and Mark had saved some money before
Justin was born. According to the report, the following chart shows how parents spend their
child-rearing budget:
Category
Housing
Food
Transportation
Misc. Goods & Services
Percentage of Household Budget
33-37%
15-20%
14-15%
10-13%
1
FCSC 3110
August, 2014
Final Paper
Clothing
Child Care and Education
Health Care
6-8%
7–10%
5-7%
Source: Lorensen,Marianne.“Bringing Up Baby.”JournalofFamily &Consumer Sciences
94.1 (2002): 10.
Additional informationaboutUSDA report:
http://wwwusda.gov/news/releases/2000/04/0138and
http://www.ext.colostate.edu/pubs/columncc/cc990305.html
Mark and Ann decided to track where they spent their money over the last six years. They
were shocked at how much they spent on entertainment and recreation. When they developed
a net worth statement, which is a record of their liabilities and assets, the liability side was
huge and the asset side was dismally low.
TheProto’sEpensesandIncomeChart
2
0
1
Expenses –Fixed
0
Rent
Utilities
Jan
Apr
Carloanpayment
Truckloanpayment
Creditcard#1
Creditcard#2
TotalFixed
$2,141.11
$2,141.11
Expenses
–Variable
Food:Groceries
Dineout
Pharmacy/medical
Trans.(gas&oil)
Babysitter/Child Care
Telephone
Clothing
Household
Furniture/Supplies
Personalcare/grooming
Entertain(movies/CD’s,
etc.)
Hobbies/crafts
TotalVariable
$3,994.34
$2,257.20
Occasional
Expenses
Insurance:Auto
Automainten.servicing&tire
sAutolicense
Dues,fees
Gifts
Travel
TotalOccasional
$0.00 TOTALEXPE
$500.00
NSES
Feb
Mar
850.
00
255.
00
251.
00
600.
5032.
66
76.
45
$2,065.61
850
850.
.00
00
255
255.
.00
00
251
251.
.00
00
600
600.
.50
5032.
32
.6
66
76
76.
6
.4 $2,065.6145
5
300.
45
120.
220
.00
85
289.
90
00
79.
00
23.
.5
80
5
.1
18
5
.7
$
00
35.
56
30.
55
12.
45
130.
00 $731.01
841
.0
12
0.5
5
21
.0
4.75
0
Aug
198.
00
65.
229.
00
115.
214.
00
48.
123.
0052.
145.
00
28.
45.
00
28.
90
55.
25
16.
25
800.
00
28.
50
2,800.
00 21.
34
1,800.
00 23.
00
39.
00
35.
34
35.
34
75.
00
10.
00
87.
00
15.
00
110.
20
55.
89
55
925.
50
255.
00
251.
00
600.
50
32.
66
76.
45
2,141.11
$0.00
$3,143.
32
Nov
Dec
925.
925.
10,728.
50
50
50
255.
255.
3,060.
00
00
00
251.
251.
3,012.
00
00
00
600.
600.
7,206.
5032.
50
00391.
32.
66
66
92
76.
76.
917.
45
$2,141.11 45 $2,141.1140
200.
00
45.
180.
0023.
230.
0030.
221.
00
75.
2,550.
35690.
45
230.
00
68.
22
48.
18
27.
15
55.
80
22.
08
52.
90
18.
78
23.
00
24.
22
6,069.
28317.
00
20.
00
45.
00
10.
00
40.
24
310.
00
36.
00
345.
00
35.
00
245.
00
56.
00
225.
00
112.
36
1,180.
00675.
24.
00
$506.36
60
189.
23
325.
78 5.
78
650.
25
13.
56
123.
50
45.
80
24.
58
245.
78
34.
75
55
34.
55
00
18.
14
88
18.
70
06
35.
22.
89
12.
14.
00
8.
0
0
32.
00
15.
33
844.
67
1,056.
58206.
0
15.
0
78
16
18.
20
48.
00
00
25
$470.38 $1,805.64
$802.56
$736.63
$13,903.72
500.
00
34.
00
$571.35
$500.00
$0.00
$3,035. $3,871. $6,135. $4,898.
99
25
45
31
$693.09
00
32
$659.56
500.
35
$579.00
$2,549
.39
925.
50
255.
00
251.
00
600.
50
32.
66
76.
45
$2,141.11
Oct
925.
50
255.
00
251.
00
600.
5032.
66
76.
45
$2,141.11
536.
0035.
34.
00
Sept
$25,315.82
500.
00
00
July
925.
925.
50
50
255.
255.
00
00
251.
251.
00
00
600.
600.
50
5032.
32.
66
66
76.
76.
45
45
$2,065.61
12.
34
56.
23
$483.78
850.
00
255.
00
251.
00
600.
50
32.
66
76.
45
$2,065.61
June
TOTAL
850.
00
255.
00
251.
00
600.
5032.
66
76.
45
$2,065.61
500.
0045.
$3,375.
62
May
435.
55
$435.55
00
1,200.
00
125.
78
345.
55
210.
00
94
78.
51
234.
$763.1648
2,000.
00
1,370.
78536.
00
103.
85.
90
$34.00 $2,045.55
$335.78
$5,087.13$2,911. $4,879. $3,136.
$3,379.
$2,990.
22
74
75
45
17
35
641.
45
435.
$85.9055
$44,306.
67
Income
Salary(takehome)-Ann
Wages(takehome)-Mark
Gifts
TOTALINCOMEBefore
Tax
2,956.
00250.
00
250.
2,956
.00
455
.00
2,956.
00425.
00
00
$3,456.
00
$3,411
.00
$3,381.
00
2,956.
00650.
00
2,956.
00
1,509.
00350.
00
$3,606. $4,815.
00
00
2,400.
00
2,400.
00
2,400.
00
$2,400. $2,400.
00
00
$2,400.
00
106
2,956.
00
2,400.
00
2,956.
00
1,850.
00
2,956.
00680.
00
2,956.
00185.
00
120.
26,604.
00
15,604.
00 720.
$5,356. $4,806.
00
00
$3,636.
00
00
$3,261.
00
00
$42,928.
00
2
FCSC 3110 – Personal Finance
August, 2014
Final Paper (Continued)
Julie Mills
Background Information
Meet 20-year-old Julie Mills. She is a junior at the
University of Wyoming (UW) and is working towards a
Bachelor of Arts degree in English Literature. She carries
14 credit hours and works part-time at a downtown restaurant four evenings a week for a total of
15 hours a week.
Raised in Phoenix, Arizona, Julie has an older brother. She attended a junior college in Phoenix
for her first two years at college. She persuaded her parents to let her attend the University of
Wyoming for her last two years of college if she made good grades; saved $3,000; and could obtain
financial aid. Her hard work and persistence paid off. She is excited about her independence and
is determined to prove to her parents that she can help pay out-of-state expenses, make good grades
at UW, and manage her finances — and her life.
Her parents were concerned about how she would handle her finances away from home. Two years
ago, her older brother, Joe, who is 26, moved back home to reduce living expenses. He started
accumulating credit card debt when he was at the University of Arizona, and by the time he had
earned his MBA, he had more than $9,200 in credit card debt. He figures it will take him another
year of hard work to pay off the debt. Before Julie left for Wyoming, her parents had a serious talk
with her about debt and the consequences of not using credit cards wisely. When she left for
Wyoming, she obtained her first credit card that she assured her parents she would use only for
emergencies. Julie’s parents helped her purchase a used car when she was a freshman in college.
Julie paid the down payment while Mom and Dad agreed to cover the semiannual insurance
premiums. Julie pays for the gas, annual license, tax, and auto maintenance.
When Julie arrived on the UW campus, she was approached by credit card issuers about obtaining
another credit card. She held out for the first two months, but by November, it was too tempting
an opportunity to refuse. Most of her friends had more than one credit card. Julie now has two
credit cards. Her way of thinking is that the first card is reserved just for those dire emergencies
her parents worried about. Card #2 will be used for things that her parents wouldn’t consider
emergencies, but that she considers “almost emergencies.” After all, each person has his or her
own definition of an emergency, right? One of the first emergencies she encountered was the need
to purchase skis and related clothing. Everyone on her dorm floor was skiing on weekends, and
she didn’t want to be left out. She also acquired a department store charge card, although she does
not really count that as the same thing as a credit card because she can only use the card to charge
for purchases at that department store, which is located in Denver. She was glad to get that
opportunity because the store offered a 15 percent discount off the total purchase amount if she
107
FCSC 3110 – Personal Finance
August, 2014
Final Paper (Continued)
signed up for the card right then and there. The 15 percent discount really helped because she was
buying Christmas presents for some college friends and her family.
It soon will be spring semester, and Julie is looking forward to going home to see her family. She
knows her parents will want a report on her financial situation. While Julie is eager …
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