Personal Finance Assignment - Essay Example

Sam and Judy Total Assets Total Assets Automobile 15000 Automobile loan (8000) Net value automobile 7000 Judy clothing 4500 Sam clothing 2000Athletic equipment 2000 Computers 1600iPods 400Cellular phones 150Television 50Total Assets 17700Sam and Judy Monthly ExpensesStudent loans 300Car loans 350Gasoline 211Subway fees 74Total Expenses 935 Sam and Judy are both employed. Their combined wages are $62,000 a year. The net pay of the couple after payroll deductions is $3,358 a month which amounts to $40,296 a year.

The couple is currently living in an apartment at Judy’s parents’ home. They don’t pay rent, eat most of their meals at home, and don’t have any utility expenses because Judy’s parents are paying for these three expenses. Currently the couple is perfectly positioned to save and invest money due to the fact that their living expenses are very low. Their two largest monthly obligations are $350 of student loans and $300 for a car loan. The current disposable monthly income after paying their fixed monthly expenses is $2,423 a month.

The couple has to set some long term financial objectives. These objectives must be projected based on the amount of money that the couple currently has available. The fixed monthly expenses of the couple are $935. There are other variable expenses that occur during the month such as lunch money, additional gasoline expenses for leisure trips, car maintenance, entertainment, and medical expenses which must be considered in a budget. Sam and Judy must allocate approximately $500 for additional expenses.

The total fixed and variable expenses of the couple are $1,435. The amount of disposable income Sam and Judy have after paying all their fixed and variable expenses is $1,923. It is time for Sam and Judy to set some short, medium, and long term financial goals. In the short term the couple must create a savings and investment plan for their future. The most common types of investments are stocks and bonds (Besley & Brigham). The cash that the couple has left over after paying variable and fixed expenses amounts to $23,076 for the first year.

The $23,076 should be divided into savings, investment, and retirement plans. The allocation ratio of the plans is divided in the following manner: 65% savings, 25% investment, and 10% retirement plan. The short term goal of the couple should be to save enough money to get a down payment for a house. The most valuable asset of most Americans is the equity of their homes. The couple should target buying a home worth $150,000. To be able to buy the home the couple must save at least $15,000 for down payment and closing costs.

The down payment of the home is 7.5% and 2.5% for closing costs. It will take Sam and Judy 12 months to save the $15,000. The mortgage payment of the $150,000 loan with a 7.5% down payment for a term of 30 years is $745. The couple after year one will have in investments $5,769 and $2,308 in retirement. After the first year the allocation for the money leftover every month will change to the following ratio: 20% savings, 70% investment, 10% retirement plan. The money allocated each month for the plan during years 2 to 5 of the plan is $1,178.

The plan assumes that the additional earnings of the couple will be offset by additional expenses once they live on their own such as daily food expenses and utilities. After five years the couple will accumulate $11,309, $45,350, and $7,962 in savings, investments, and retirement respectively. In a span of ten years the savings, investments, and retirement accounts of Sam and Judy will grow to $25,445, $94,826 and $15,030 respectively. These figures are conservative since they don’t take into consideration the growth from interest, dividends, and capital gains.

Work Cited PageBesley, S. and Eugene Brigham. Essentials of Managerial Finance (12th ed.). Forth Worth: The Dryden Press. 2003. Print.