Reference no: EM132426272
Personal Budgeting and Debt Management
Dan and Sue Koogler, 29 and 28, are trying to get ahead financially. They also want to buy two "big ticket" items (a house and a car) and pay for Dan to complete his college degree requirements. Their primary financial objective, however, is to reduce debt and achieve positive cash flow. The couple also has very little savings and would like to be able to put some money aside.
The Kooglers are parents of a pre-school child and Sue is a stay-at-home mom. Dan is the sole breadwinner and earns $40,000 annually. Sue is interested in returning to the labor force but concerned about whether child care costs and taxes would wipe out whatever she would earn.
Unfortunately, the Kooglers are starting to face some financial difficulty. Monthly payments on their debts are consuming a greater percentage of their income and, along with their mortgage, don't leave them much income for other expenses. The couple has absolutely no money in savings for emergencies.
Another indicator of financial distress is the couple's negative net worth. In other words, they owe more than they own. The couple's assets total $100,600 and include $1,000 in a checking account, $2,600 in Dan's 401(k), a $84,000 condo, and two cars and personal property worth $13,000.
On the debt side, the couple owes $84,000 on their mortgage, two personal loans totaling $10,000, $7,000 on a credit card, $7,193 on a time share, and $13,000 to Sue's parents. Their net worth (assets minus debts) is, thus, minus $20,593.
Dan says he would like to retire when he is 55 and "live comfortably and independently." Neither Sue nor Dan has IRAs, however, and Dan has stopped contributing to his employer 401(k). The couple has no wills. "I don't have money to pay a lawyer to do the will and am not sure how to do it without a lawyer," Dan explained.
The couple has $300,000 of term life insurance on Dan and family health insurance with a $250,000 per person limit paid for by Dan's employer. They carry $300,000 of liability insurance on their cars and $65,000 of condo insurance. There is no disability insurance to cover the loss of Dan's income should he be unable to work due to accident or illness.