Question

Greg and Cindy Hana, 35 and 27, are the parents of two small children with a third on the way. They are concerned about their financial future and are wondering if they're doing things right. Greg is the sole breadwinner and earns $66,000 annually. He works in a relatively dangerous occupation (city cop in Newark, NJ) and is eligible to receive a pension when he is only age 48, with 25 years of service.

The Hana's short-term financial goals are to replace their aging cars in a few years and begin an automatic mutual fund investment program. Longer term, they are concerned about college costs and retirement. They estimate (but are not sure) that their monthly expenses average $2,800, including a $1,300 mortgage payment on their $200,000 home.

Greg currently saves $350 per month in a deferred compensation plan offered by his employer. The couple also has $1,000 of stock and $2,000 in mutual funds. Other assets comprising their $74,500 net worth are a $3,000 CD, $2,000 in checking, $6,500 of life insurance cash value, their home, and two cars worth $2,000. The couple's two debts are a $141,000 mortgage balance and a $1,000 Visa card bill.

The Hanas own life insurance policies totaling $400,000 ($300,000 through work) on Greg and $77,500 on Cindy but lack disability coverage. Greg's employer provides health insurance for the entire family. The liability limits on their auto and homeowner's policies are $300,000.

Neither spouse has individual retirement accounts (IRAs). Greg will receive a traditional defined benefit pension based on his income and years of service. Since he will be relatively young when he is eligible to collect benefits, he plans to continue working in a related field through his 60s.

A glaring weakness in the Hana's financial planning is their lack of a will. "We do not know who to assign as guardians of our children," notes Greg. This is a common dilemma for parents of young children, who sometimes wait until their children are grown to draft a will so they don't have to deal with this issue.

1. 3 – 5 recommended action steps to improve the individual or family’s financial situation

2. Recommended financial products such as bank accounts, insurance policies, and mutual funds

3. Available resources that can assist the individual or family to improve their finances

Answer 1

SOLUTION(A)-

STRENGTHS OF FAMILY'S FINANCIAL SITUATION -

· Greg earns pretty well.

· They are planning to start an automatic mutual fund plan.

· Greg saves in the deferred compensation plan.

· Couple have investments in stocks and mutual funds already.

· They have life insurance policy, which is a very good thing in case of causality, especially when your sole breadwinner is doing a dangerous job.

· They have cars, although they are old.

· They have purchased home, although it is on loan yet.

· Greg is entitled to get a traditional defined benefit pension after retirement based on his salary and time of service, which is an excellent thing in the old age.

WEAKNESSES OF FAMILY'S FINANCIAL SITUATION -

· Greg is only earning person in the family.

· The cars are old so they need replacement that cost moderate capital expenditure to occur.

· Investments are meager in the value.

· There is $ 142000 existing loan to pay.

· Spouse does not have any IRA.

· Greg is entitled to get a traditional defined benefit pension after retirement based on his salary and time of service, which will be very low in value for his respective expenses.

· Lack of will which will be used to secure their children's future in case of any mishap.

· Not having any proper fund to pay for their children's expenses like college, school etc in future.

SOLUTION(B)-

· They can have as many as life insurance policies they wanted to have but the amount of redemption will be limited in case of the loss. Both policies providers will compensate a fixed ratio.

Life insurance policies generally have disability coverage included