Question

John and Nina Hartwick, married 14 years, have a 10-year old daughter, Rita. Eight years ago, they purchased a home on which they owe a mortgage of $160,000. The home is appraised at $220,000. They also owe $6,000 on a two-year old automobile. The automobile is worth $12,000. All of their furniture (value $15,000) and second car (value $6,000) is paid for, but they owe a total of $18,120 on two high interest rate credit cards (19.99%). John is employed as an engineer and makes $85,000 a year. Nina works from home as a part-time graphic designer and earns $22,000 a year. Their combined monthly income after deductions for taxes and their portion of employer-sponsored health care is $6,200. John is eligible for his company’s 401(k), but he does not contribute. His employer will match 100% up to 3% of his contributions. Nina’s company does not offer a 401(k).About six months ago, the Hartwick’s had what they now describe as a “financial meltdown”. It all started one Monday afternoon when the transmission on their second car had to be replaced. Although they thought it would be an easy fix, the mechanic told them the transmission would need a complete overhaul. Unfortunately, the warranty on the automobile’s drive-train component was for 5 years or 50,000 miles. Since this car was just over 6 years old, they would have to pay for the repair, and the mechanic said it would cost about $2,100 to rebuild the transmission. They thought about buying a new car, but they did not think they could afford two car payments. At the time, they had about $3,500 in their savings account, which they had been saving for a summer vacation, and now they had to use their vacation money to fix the transmission. They have $2,000 in their checking account. Their Traditional IRA is valued at $51,000, and is in a Certificate of Deposit that earns 3% per year.For the Hartwick’s, the fact that they did not have enough money to take a vacation was a wake-up call. They realized they were now in their mid-30s and had serious cash problems. According to John, “We do not waste money to do the things we want to do.” But according to Nina, “The big problem is that we never have enough money to start an investment program that could pay for our daughter’s education or fund more money into our retirement account.” They would both like to retire when they reach the age of 65They decided to take a big first step in an attempt to solve their financial problems. They began by examining their monthly expenses for the past month. See page 3 for cash inflows and outflows.Once the Hartwick’s realized they have a $250 surplus each month, they plan on replacing the $2,100 taken from their savings account to pay for repairing the transmission. Now it was time to take the next step.

1. How would you rate the financial status of the Hartwick’s before their second automobile broke down? Provide a discussion of the strengths (minimum of four) and weaknesses (minimum of four) of the Hartwick’s current financial situation.

Answer 1

Hartwick's Financial condition is at a stage where he can spend only on basics needs. He has not enough money to spend on the vacation. He has taken home loans and also having due amount for vehicle $6000. He also owes two credit cards at a very high rate of interest. He has not many fixed assets in his name. His financial condition is very low. Good point is that both Hartwick and Nina both are working and earning money.

Strength Of Hartwick's Financial Position:

He and His wife both are earning regularly. Hartwick is doing good job and Nina is a graphic designer. He purchased a home for a Loan of $ 220000 now they have to pay only $160000. they also have a vehicle and furnitures. Both are earning a good amount of Rs. $6200 per month after payment of all taxes and dues.

They have IRA amount $51000 and earning 3% rate of Interest. In small amount of monthly income they are doing well like having a house, furniture, vehicle, and Deposit.

Weaknesses

Hartwick has a loan of $ 160000 for house and $6000 for vehicle he purchased. he has a credit card amount $18120 on which he has to pay a high rate of interest 19.99%. He has not planned any saving for her daughter future. He is eligible for comapnies 401(k) bou he is not contributing in it. he has  not sufficient amount to replace his old vehicle or purchase new vehicle. For repair he has to use his saving which he done for the vacations.

Hartwick planning to use money is not good. He has to reduce some irrelevant expenses and save money for future or for other purposes.Irrelevent Expenses like Credit card bearing high rate of Interest. He also require to invest in deposits giving higher rate of interest. he has also to invest for her daughter future education.