The paper 'The Money Outflow' is a wonderful example of a financial and accounting case study. The couple has an income of $140,000 which is earned from; media grossing where Mary works and earns $85,000, a part-time job in a club where John earns $10,000 and a gardening business they operate which gives them $45,000 as the profit. Their expenses which cater to their mortgage payment, daycare for their three children, and contributions to a superfund, business expenses and savings among others total $145,608. This is an indicator that the couple is spending more money than they earn.
The money outflow is much more than inflow. This is a problem for them because if this persists, the couple will accumulate a lot of debt and loans since their account cannot support their living standards. This will translate into bankruptcy in the near future. The couple has a deficit of $5,608 every year. Their problem depicts them as poor financial planners because they spend more than they earn and thus have to incur liabilities to meet their needs. This also indicates that it is difficult for the couple to develop their financial structure as their problem indicates they do not budget for their finances and thus are not in a position to invest or save. Necessary steps the couple needsThe mortgage cost that the couple is paying is much higher and thus too expensive for their current amount of income.
Considering the amount of income that the john and Mary are earning, the mortgage payment should not be as much as they are paying. To reduce the deficit the couple needs to prolong or add the mortgage payment period and hence reduce the mortgage cost per month.
They should reduce it to less than $2,000 every month. This will improve their cash flow to be positive. It will also enable them to spread the payment of the mortgage to other years and thus will not have to incur additional debts to pay off the current mortgage. The cost of daycare with respect to their income is much higher since it takes a considerable amount in their income thus contributing to the deficit. Some institutions provide and offer cheaper daycare services.
As such, John and Mary should enroll their children at a daycare institute that offers cheaper but quality services. The $90 per day is much expensive; it is the highest in the market. They can enroll for a daycare costing $50 for a day. Alternatively, the couple can hire a carer or use the services from care providers. This will provide them with a better and cheaper means of taking care of their children and eventually enable them to cut down on their expenses. John’ s contribution to his self-managed superfund is very high.
Considering the amount of income that he earns every year, he should reduce the number of concessional contributions to $1,500. This will save the couple $1,000 which they can invest to earn more income as well as reduce their current rate of expenditure. In the same way, Mary’ s contribution to her capital guaranteed fund is much more. The salary sacrifice of $5,000 pa annum is much more. As such, she should reduce the amount of salary sacrifice to $3,000. This will save her $2,000 and they use it to invest in an income-generating portfolio.
This will also make them achieve the goal of financial responsibility by spending within the limits of their income.
ReferencesAlexander, Carol. Market models: a guide to financial data analysis. John Wiley & Sons, 2001.