Financial Planning For Cory And Tisha Dumont

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Instructions1.Answer all thequestions. All questions are based on the information provided in the followingcase.2.Make sure to show all calculations for questions that require calculations. If you use aworksheet from any chapter, submit that as well.3.Make appropriate assumptions where required but make sure to list your assumptions clearly,and the rationale for making those assumptions.

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Financial Planning for Cory and Tisha DumontBackgroundCory and Tisha Dumont recently read an article on personal financial planning inMoney.The articlediscussed common financial dilemmas that families face throughout the life cycle. After reading thearticle, based on the record-keeping suggestions in theMoneyarticle, Cory and Tisha have put togetherthe following information for your use in helping them answer their personal finance questions.1.Family: Cory and Tisha met in college when they were in their early twenties. They continued todate after graduation, and 6 years ago got married. Cory is 31 years old. Tisha is 30years old.Their son Chad just turned 4 years old, and their daughter Haley is 2 years old. They also have acat named Freddie.2.Employment: Cory worksas a store manager and makes $38,000 a year. Tisha works as anaccountant and earns $46,000 per year.3.Housing: The Dumonts currently renta three-bedroom townhome for $1,100 per month, butthey hope to buy a house. Tisha indicated that she would like to purchase a home within thenext 2 to 3 years.Tisha’s sister and her husband just bought their first home, making Tisha evenmore anxious to move from their rented house.The Dumonts are well on their way to achievetheir goal. They opted for a small wedding and applied all gifts and family contributions to amarket index mutual fund for their “dream” house. When they last checked the fund accounthad a balance of $13,000.However,Cory wants to wait awhile longer before buying a home andhas suggested that they should replace their older high-mileage car. He really wants to buy anew nicer car. Cory and Tisha realize that funds for another payment are limited, not to mentionmoney for a house payment. Their options are to reduce payments on their credit cards or toreduce other expenses. At any rate, $300 a month seems to be the maximum amount availablefor an auto loan, not to mention any likely increase in their auto insurance premium associatedwith the new vehicle.Financial Concerns:1.Taxes: Cory and Tisha have been surprised at the amount of federal, state, Social security andMedicare taxes withheld from their pay. They aren’t sure if the tax calculations are correct.2.Insurance: They are also unsure about the amount of automobile, home, health and lifeinsurance they should have. Up until this point, they have always chosen the lowest premiumswithout much regard to coverage. They were a little amazed to recently learn that the cashvalue of Tisha’s life insurance policy is only $1,800 although they have paid annual premiums of$720 for several years.3.Credit and cash management: Cory and Tisha are also curious about the use of credit.It seemsas though they receive 2 to 3 new credit card offers per week that promise a low interest rateand a lots of rewards. They aren’t sure if they should be taking these offers or keeping theircurrent credit cards. They are often surprised by the amount charged on their monthly creditcard statements, and although they pay $100 each month towards credit card debt, theircombined account balances always seem to hover around $1300. It is common for them towithdraw money from bank ATMs to cover daily expenses, and they usually carry about $100 incash between them. Even so, it still seems as if they often rely on their credit cards to makeends meet.

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4.Savings: Cory and Tisha were intrigued by the following recommendation in theMoneyarticle,“Pay Yourself First”. In fact, it was this statement that prompted the Dumonts to undertake areview of their personal finances. They like the concept, but are unsure of how to go aboutimplementing such a goal.They currently have a savings account balance of $2, 500 that earns3% annual interest. The bank where they have their checking account requires them to keep aminimum balance of $1000 in order to earn annual interest of 0.75%. Their current checkingaccount balance is $1,800.5.College savings: Cory and Tisha are concerned about college expenses for Chad and Haley, asthey have experienced the impact of long-term student loan payments on their own financialsituation.6.Retirement savings: Cory and Tisha both know that they participate in a “qualified retirementplan” at work, but they don’t know exactly what that means. They do not currently have anindividual retirement arrangement (IRA) or access to profit sharing plans. A recent statementfrom Cory’s former employer indicated a value of $2,500 in pension funds he left with thatcompany.7.Risk:Cory is quick to point out that he doesn’t like financial surprises. On the other hand, Tishaindicated that she is willing to take financial risk when she thinks the returns are worthwhile.8.Estate planning issues: They do not have a will nor do they have any kind of trust.9.Recreation and health: Cory and Tisha enjoy bicycling and hiking with Chad and Haley. They alsoenjoy playing golf and have also considered joining a golf club that charges a $250 monthly fee.The Dumonts are in good health, although they think that Chad will need eyeglasses and bracesfor his teeth in the next few years.10.Insurance planning:Cory and Tisha read a recent newspaper article that stated that personalbankruptcy and other financial problems often result from uninsured losses. This made themcurious about their own insurance coverage.Additional informationOther estimated annual expenditures:Food (at home and dining out)$6200Clothing$3100Auto insurance$1800Transportation (use,maintenance, licensing)$1900Dental and health care$750Lifeinsurancefor Tisha$720Medical insurance(pre-tax, employer deductionfor a family plan, Tisha)$2700401 (k) retirement contribution(pre-tax employer deduction, Cory)$1900401 (k) retirement contribution(pre-tax employer deduction, Tisha)$2300Renter’s insurance$200Utilities$3600Entertainment$1500Telecommunications (cell phones)$900Taxes (federal, state, social security, Medicare)$15000Property taxes (auto)$695

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Charity donations$1200Day care$9700Savings$1000Miscellaneous$2000Other assets:Automobile No. 1: 2-year-old, midsize SUV with a fair market value (FMV) 0f $14,800, amount owed:$12,925 (36monthsremainingonthe loan), monthly payment: $405Automobile No. 2: 4-year-old, 2-door coupe with a FMV of $7800, amount owed: $0Household furniture,electronics, and other personal property worth approximately $12,000Antique jewelry: Tisha received this as an inheritance from her grandmother and has indicated that shewould never part with the jewelry. The jewelry has an estimated value of $19700.When Tisha turned 21 her father gave her 100 shares of the Great Basin Balanced mutual fund worth$1000. Today the fund is worth $2300.Other Consumer Debt:Credit card debt (Visa, MasterCard, Discover, American Express and several store cards): $1300revolving outstanding balance, $50minimum monthly payments, $100 actual monthly paymentsStudent loan debt (inCory’s name): $8200 balance, $196monthlypayment, $652 interest payment for2011Furniture company loan: $5300 balance, $210monthly payment (30 months remaining on the loan)Life InsuranceTypeCoryTisha__________Group life insurance2 times gross income1.50 times gross incomeWhole life insurancenone$50,000Cash value$1,800Annual life insurancepremiums$0; employer paid$0 for employer provided;$720 for whole life (due nextmonth)BeneficiaryTishaCoryContingent beneficiaryTisha’s parentsTisha’s parents__________Health InsuranceTisha’s employer provides a comprehensive major medical policy that covers all members of theDumont family to a lifetime cap of $3,000,000 per insured. The policy provides an 80/20-coinsurance

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