Question

Meet the Marcottes, Martin and Luz Marcotte that is. Martin is a successful graphics designer who is 38 years old, while Luz is a counseling psychologist, 35 years old and is working at a State facility in Kansas. They have a 10 year old daughter Paloma, who is in the fourth grade, and a three year old son Joel, who goes to the nearby daycare center. The Marcottes will be facing numerous challenges as the financial planning topics progress, which will require you to practice sound financial decision making, and in other instances where there is a sufficient time horizon, some prudent financial planning. Currently, Luz is finishing her doctoral program in Psychology, while maintaining a parttime status at the Habilitation Center where she works. The Marcottes own a home, two cars, have approximately $12,000 saved up in various savings and investment accounts, and own some assets around the house. They are also vested in their 401ks that they maintain at their respective places of employment. Presently, there are some financial issues facing this couple, they have not addressed. Although, they both have jobs where they make decent salaries, they have not really thought about their children’s educational needs. Inflation in the cost of college education is a reality for most parents, which has to be kept in mind when planning for the future. Moreover, Martin’s mom who is in her late seventies, has been facing declining health, and will not be able to live by herself, like she has been, for very long. Luz, who is originally from Peru, also sends regular amounts of money to her family, but her folks are also aging and may need some financial assistance in the future. Lastly, since they lead a fairly hectic lifestyle, they have not given much thought to their own retirements, or the possibility of how they would handle a layoff from work. Referring back to the Marcottes, consider the situation where Martin has been told by his boss that due to lower sales the company is anticipating layoffs. After getting the word Martin came home and talked to his wife and the kids. They decided to make up a list of 3 things.(1) bills they have to pay each month (2) areas where they can reduce the spending and (3) sources of funds to help them pay current expenses. Each family member has several ideas on how to cope with the impending financial situation. Currently the Marcottes monthly take-home pay is $3165. Each month, the money broadly goes for the following items:

Rent $880 Utilities $180 Food $560 Auto Expenses $480 Clothing $300 Insurance $280 Savings $250 Personal Items $225

After Martin is laid off, the monthly income will drop to $1550 from his wife’s income and his unemployment benefits. The Marcottes have $12,000 in various savings and investments accounts for the children’s education. Besides this they have about $24,000 in their retirement accounts and investments.

1. What items might the Marcottes consider reducing to cope with their financial difficulties?

2. Show their monthly budget detail prior to Martin’s layoff, and the monthly budget after the layoff, with your suggested adjustments from question 1 above. How should the Marcottes use their savings and retirement funds during this financial crisis? What additional sources of funds might be available to them during the period of unemployment?

3. What other current and future financial actions would you recommend to the Marcottes? Looking for creative suggestions here. Saying things like “save more money” or “spend less” are meaningless in response. Be specific.

Answer 1

Q1. By observing the expenses heads the Marcottes have, they can consider cutting down spending in Clothing and Personal Items.

Q2.

Marcotte's Monthly Budget prior to Martin's layoff

Revenue or Expense Heads
Take home pay		3,165
Expenses:
Rent	880
Utilities	180
Food	560
Auto Expenses	480
Clothing	300
Insurance	280
Personal Items	225	2905
Savings = Take home income - Total expenses		260

Marcotte's Monthly Budget after Martin's layoff:

Revenue or Expense Heads
Take home pay		1550
Expenses:
Rent	880
Utilities	180
Food	560
Auto Expenses	480
Clothing	300
Insurance	280
Personal Items	225	2905
Savings or (deficit) = Take home pay - Total expenses		(1355)

The Marcottes can make up for the defecit in their accounts by withdrawing form their savings.It is not advisible for eithr Martin or Luz to withdraw from their 401(k) accounts since withdrawals are subject to a penalty. However, they can withdraw from these accounts for a medical emergency, although the 10% withdrawal penalty may be levied, depending on how much they withdraw.

Q3. In times of financial difficulties, the Marcottes can reduce having meals outside. This would save some money. They would need to look out for and choose the discounts and offers that would result in more savings on clothing and personal items.

They can also cut auto expenses by synchronizing their their daily transport schedules.

By taking care to switch off the lights and electric connections when not in use, they can also reduce their utilties bills.

Since Luz send regular amounts to her family, she could consider sending reduced amounts to her family, until the finances are back on track.

Finally, Martin can continue to look for other job opportunites, and take up part-time or temporary jobs in the meanwhile that would help increase the family's monthly income.