Things that David and Jennifer Should do First - Essay Example

Finance: Case Study Student’s name: Subject: Lecturer’s Name: Institutional affiliation: Date Due: Things that David and Jennifer Should do First In my opinion, David and Jennifer are having a hard time financially as evidenced by the numerous loans and debts. This is also observable when the fact that they are not aware of where they are going to get the money to pay for the children’s school fee is taken into consideration. In order to ease their financial burden, I would propose that David and Jennifer consider carrying out the following first. Firstly, the couple should come up with new ways of generating income. This may include actions such as David opening up a full time office with the aim of increasing his client base. The other action that the couple should consider taking is venturing into the new business that promises to quadruple his investment in 12 months time. Secondly, David and Jennifer should consider moving to their seaside unit and selling their house, which is on a mortgage, so as to use the proceeds to clear the debts and loans. This is because if one takes into account the fact that David is in his early 40’s and the mortgage payment will take over twenty years, it is highly likely that he might not be able to complete the payment hence he might end up losing the collateral. By selling the house and moving to the seaside unit, David and Jennifer will have an extra $ 312220 which they can use to settle their immediate needs and use the remainder to pay up the first and third loans that have early repayment plans. Moving to the seaside unit will also enable him to save the 7% (agent fee) of the gross total collected from the tenants of the unit. The seven percent is the amount he pays his agent. Thirdly, David should ask his brother to contribute towards the household expenses. In case he (the brother) is not willing to do so then David should tell him to move out and rent his place since he is above 18 years of age. This will help him to save the amount he spends on hi brother’s expenses. Fourthly, David should consider taking a death cover for his mother from an insurance urgency. This is because her illness cannot be treated. Taking a death cover from an insurance company will ensure that he has the funds to give his mother a proper send off and also carter for all the funeral expenses and other needs in case of death. Lastly, David and Jennifer should consider using their emergency funds to off-set the children’s school fees. This will enable them to pay for the on-coming term and will, therefore, be able to have more time to look for money to pay for the on-coming terms. They should also halt the use of the credit card as it is amongst the high ranking factors that can easily lead one into bankruptcy due to the fact that one can shop beyond his limit of available funds. Description of the Current Financial Situation The family of David and Jennifer is faced with a dire financial problem that needs to be tackled urgently to salvage the situation from further deterioration. The financial problems are evidenced by the lack of enough money to pay for the children’s school fees. Their inability to service their loans efficiently is also a proof of their financial situation as evidenced by the number of loans they re currently servicing and the pending mortgage, and also the fact that they are unable to raise the amount requested in order to invest in the new and promising venture. Their financial state is further affected negatively by the lack of a retirement plan for David. Aspects of David and Jennifer’s Finances David and Jennifer earn a total of $240000 per year before tax and a total of $ 182999.15 after tax from their respective jobs. Additionally, they earn extra income from other investments such as the seaside unit that gives them a gross income of $12240 annually. In total, the couple earns a total of $195239.15 every year. Of this amount, $65000 goes towards paying the children’s school fees; $70740 is spent in servicing the home mortgage annually, while $20024.57 goes towards the repayment of the three loans. Also, the couple spends $ 1275.77 annually in servicing their credit card. Action David and Jennifer Should Take David and his wife should consider taking the following actions so as to save their family from any additional financial deterioration. David should work towards opening a business office in order to tap into the corporate market. This will increase his client base and will, therefore, enable him to earn extra income on top of the amount he already earns from his home to home IT business. He should also consider venturing into the proposed business as this is likely to increase his income base. David should discard his credit card. This is because the card is likely to plunge him deep into financial problems. David and Jennifer are already in financial problems, and the continued use of the credit card would further affect their financial position. This is also due to the rationale that the revolving credit may enable the couple to spend beyond their means. Other reasons for the two to discard the credit card include the fact that the prices of their purchases are likely to increase because of balance and also in case they miss the payments. David should sell the home he currently resides in and move to the seaside unit. This action will ensure that he has enough money to pay for his children’s needs and other needs such as expanding his business or even investing in the new venture. The decision is also likely to help them save the7% he has been paying his agent as he will be able to monitor the units personally. The decision will also help him to channel the amount he has been using to pay the mortgage into other activities that are of high priority such as expanding his business and investments. With this in mind, David and Jennifer should work and save towards building or purchasing a home but not through mortgage because through the method they standard a high chance of losing their collateral. Also, the mortgage may have the disadvantage of being expensive if factors such as time frame and interest rates are taken into account. David should take the early repayment option on the first and third loans. By doing so, David will be able to save some money and will also enable him to have time to concentrate on his other loan and debts. David should take an insurance cover for his mother. This will ensure that her hospital bills are paid on time, and also because she suffers from inoperable tumor, it will help him to plan for her funeral in case of death. Assumptions Assuming that David and his wife sell the house on a mortgage; they are going to have extra $ 312220. This amount is enough to carter for their children’s school fee for the whole year, and it is also enough to meet other expenses such as paying the loans with early repayment options. The amount will also enable them to complete the payment for the seaside unit and venture into business. This postulation is derived from the fact that David is already in his 40s, and this might affect his payment of the mortgage, which runs for over twenty years. He will complete the payments in his seventies. This might affect his financial position as he does not have any retirement plan. If we also assume that David has a retirement plan, he is likely to save enough money to purchase a family home in the upcoming days and also assure his family of a comfortable future. If David saves the money he pays up monthly on the mortgage, he is likely to save enough cash to enable him either build or purchase a home minus going for the expensive and risky mortgage option. Assuming that David and Jennifer sell their home and invests part of their proceeds into the proposed car fuel economy business, they are likely to solidify their financial base. This is because the business is new and promising, and therefore, they are likely to make good profits from the venture. If David and his wife decide to halt the usage of their credit card today, they are likely to reduce their expenses that accrue as a result of the card usage. They are also likely to save money for other necessities and live within their means. Lastly, if David decides to open up an office for his business in town, he is likely to attract new clients. This is likely to increase his income base and will, therefore, be able to meet all his financial obligations in time without straining. Conclusion In a nut shell, the observation of the suggested action is likely to improve the financial standings of David and his wife. This is due to the fact that they will be capable to pay for loans in time; they will not have to pay any house rent and mortgage and will also pay school fees in time, and leave a comfortable life. Taking a better retirement plan is also likely to assure the family of a comfortable future. Taking the insurance cover for his mother will decrease the health and funeral expenses he is likely to incur in case of death. Read More