Budgeting. They decided to revise their budget to make it possible to start saving. By reducing...
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Budgeting. They decided to revise their budget to make it possible to start saving. By reducing their spending on recreation, they freed up funds to be saved for a down payment on Sharon's new car and the children's college education. Liquidity. They maintain sufficient funds in their checking account in case of unexpected expenses. Financing. They now consistently pay off their credit card bill at the end of every month so that they do not incur finance charges. They also obtained a four-year car loan to finance Sharon's new car. Protecting Their Wealth. They decided to increase their car insurance coverage, reduce the deductible on their homeowner's insurance and obtain flood insurance, and buy disability insurance. They also purchased a life insurance policy for Dave. Investments. They decided not to buy individual stocks for now because of the risk involved. They decided that they will invest their savings for their children's education in mutual funds. They will not invest all the money in one mutual fund or one type of fund, but will diversify among several types of mutual funds. Retirement and Estate Planning. They decided that Dave should invest at least $3,000 per year in his retirement account because his employer matches the contribution up to that amount. They made a will that designates a trustee who can allocate the estate to ensure that the children's college education is covered and that the children receive the benefits in small amounts (so they do not spend their inheritance too quickly). Now that Dave and Sharon have completed their financial plan, they are relieved that they have a plan to deal with their budget, liquidity, financing, investing, insurance, and retirement. 1. Explain how the Sampsons' budgeting affects all their other financial planning decisions. 2. How are the Sampsons' liquidity and investment decisions related? 3. In what ways are the Sampsons' financing and investing decisions related? 4. Explain how the Sampsons' retirement planning decisions are related to their investment decisions. Budgeting. They decided to revise their budget to make it possible to start saving. By reducing their spending on recreation, they freed up funds to be saved for a down payment on Sharon's new car and the children's college education. Liquidity. They maintain sufficient funds in their checking account in case of unexpected expenses. Financing. They now consistently pay off their credit card bill at the end of every month so that they do not incur finance charges. They also obtained a four-year car loan to finance Sharon's new car. Protecting Their Wealth. They decided to increase their car insurance coverage, reduce the deductible on their homeowner's insurance and obtain flood insurance, and buy disability insurance. They also purchased a life insurance policy for Dave. Investments. They decided not to buy individual stocks for now because of the risk involved. They decided that they will invest their savings for their children's education in mutual funds. They will not invest all the money in one mutual fund or one type of fund, but will diversify among several types of mutual funds. Retirement and Estate Planning. They decided that Dave should invest at least $3,000 per year in his retirement account because his employer matches the contribution up to that amount. They made a will that designates a trustee who can allocate the estate to ensure that the children's college education is covered and that the children receive the benefits in small amounts (so they do not spend their inheritance too quickly). Now that Dave and Sharon have completed their financial plan, they are relieved that they have a plan to deal with their budget, liquidity, financing, investing, insurance, and retirement. 1. Explain how the Sampsons' budgeting affects all their other financial planning decisions. 2. How are the Sampsons' liquidity and investment decisions related? 3. In what ways are the Sampsons' financing and investing decisions related? 4. Explain how the Sampsons' retirement planning decisions are related to their investment decisions.
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