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 first 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 $10,000 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. 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.

Q1: What items might the Marcottes consider reducing to cope with their financial difficulties? Please explain the detail. What alternative actions can they take to reduce some of their expenses?

Q2: How should the Marcottes use their savings and retirement funds during the financial crisis? Analyze and list in detail.

Q3: What additional sources of funds might be available to them during their time of employment? (think out of the box)

Q4: What other current and future financial actions would you recommend to the Marcottes?

Q5: Based on the information above, how should the Marcottes have in an emergency fund? What steps should they take to reach that amount?

Answer 1

Answers

1. To reduce the financial difficulties Marcottes should reduce their unncessary and avoidable expenditure. Following items Marcottes should consider reducing to cope with their financial difficulties (avoidable and unnecessary)

Rent,Auto expenses as they are having their own home and 2 cars rent and auto expenses can be avoidable. While the other expenditures are necessary and day to expenditure any way they have to be incurred by Marcottes. Instead of paying rent to outsiders they should use their own home and Instead of paying auto expenses they should their own cars.By doing this they will save $1545 ($880+$480).

2. Savings should use for their children's education and amount in retirement accounts should invest where they can get good return ,Marcottes shouldn't use their savings and retirement accounts during their financial crisis for day to day expenses.as they have sufficient income by way of salary income of Luz and unemployment benefits($ 1550) to meet their necessary  and unavoidable expenditure $1545 (Utilities $180,food $560,clothing $300,insurance $280,personal items $225).

3.There are some additional sources of funds available to Marcottes

• Writing books in which they expertise in their respective field and sell the books .
• Rent car when it was idle.
• Rent some portion of their home and earn extra income.
• Offer back ground and skills verification services to their respective employers who receive high volume of candidates.

4. Current financial actions are  use the present Luz income and Unemployment benefits of $1550 to daily expenditure like utilities, food,clothing,personal items and Insurance which will amount to $1545   and remaining $ 5 should be saved.

Future financial actions are use the savings amount for children's education and invest the retirement amount in investment in which they get good returns.  

5. Marcottes emergency fund should provide for following expenditure

Food $560, Utilities $180,clothing $ 300 ,Insurance $280, Personal items $225 which will amount to $1545.

They can met the fund by using salary income of Luz and Unemployment benefits of Martin ($1550) and avoid the expenses of rent and auto expenses by using their own home and cars.