Executive Summary
Although the couple seems to be doing comparatively well as far as their financial resources are concerned, Anna and John could use a different approach toward investing their money. Furthermore, the couple should redesign the approach toward resource allocation. Particularly, the issue of cost management needs to be brought up as one of the primary concerns of the family. It is essential that Anna and John should get their priorities straight and plan their budget accordingly (Friedberg 121). Additionally, the very concept of setting goals and achieving them with the help of their budget needs to be redesigned. While it would be wrong to demand that every single purchase should be planned carefully, it will be necessary to make sure that the couple is aware of the risks and their financial limitations (Ahmed et al. 10).
Homeowner’s Insurance
Given the fact that the rent for the house is comparatively low, as well as the fact that there are valuable personal possessions, it will be reasonable to spend a significant number of the financial resources on the homeowner’s insurance. Furthermore, one should mention that the APR for the house is comparatively low (i.e., 3.5%, which means that the family will have to pay an average of
($250,000-$12,500)•0,035≈$8,312
every year). Thus, there is a possibility to extend the family’s budget so that the house could be insured appropriately. One must bear in mind that the threat of a theft implies that the family will lose a total of at least
$18,450+$26,000+$3,500 = $47,950
, i.e., the jewelry, the gun collection, and the cash hidden in the house, the, which means that insurance must include the items in question (Gitman et al. 364).
Auto Insurance
Auto insurance will also have to be comparatively high since one of the cars is quite expensive. Therefore, maintaining it in good condition and addressing possible accidents will require a significant amount of money. It should be borne in mind that the couple should be able to pay $250 deductibles in case the auto insurance coverage is required. Furthermore, the fact that the APR on the car loan is currently at 6% means that the family has to submit the payment of
($21,500+$1,600) = $23,100
will have to be submitted so that the family could use the vehicles. Therefore, it is reasonable to suggest that Anne and John should adopt a more flexible strategy in their resources management.
Life Insurance
Another essential aspect of the financial planning process, life insurance will have to be considered. Given the fact that the net worth of the family is $57,895.00, it will be necessary to cut some of the expenses taken by Anna and John on a regular basis; for example, the utilities- and the entertainment-related aspect of the costs taken by the family will have to be reconsidered. For instance, the total number of expenses for entertainment may be reduced to $400, whereas the consumption of water and electricity may be reduced so that the total of the utilities should equal $800 instead of $1,200. Although the identified goal will require that Anna and John should reconsider their approach toward resources management entirely, it will also imply that they should also alter their lifestyles as well. In other words, a more elaborate approach toward the use of their assets, including not only money but also personal possessions, must be viewed as a necessity.
Disability Insurance
When considering the amount of disability insurance, Anna and John must bear in mind that setting their bar too high may cost them their job. Indeed, by setting the disability insurance costs high, they will basically declare that they have health issues that may be incompatible with certain types of work. Therefore, employers may be reluctant to consider them as possible job applicants (Stiglitz and Kaldor 26).
Other Insurance
Double insurance can be viewed as a possibility for the couple. Indeed, seeing that their budgets are intertwined, they might consider the idea of insuring the same item under different policies (Clark 248).
Risk Management Strategy
When considering the available tools for managing risks, one should suggest the instrument known as Risk Reduction. Aimed at bringing the risk levels down to a considerable extent, the identified approach is likely to help the family address some of the issues associated with the possible loss of or damage to their possessions. For example, the jewelry, the money that is stored at home, and other items that could use better security definitely require insurance.
Non-Insurance Recommendations
As stated above, it is crucial that the couple should view a change in their concept of resource management as a necessity. For instance, they might redesign their current use of resources by focusing on investments rather than simply saving money (Frazer et al. 340). Furthermore, the idea of storing financial resources the way in which they do it now does not seem legitimate. Instead of hiding money under the mattresses, the couple should consider buying a safe. It is also suggested that John and Mary should consider using a different approach to cost allocation. Although it might seem adequate at present, they may need to be more cautious so that they could have extra resources in case of a crisis or an emergency.
Works Cited
Ahmed, Rizwan Raheem, et al. Influence of Children on Family Purchase Decisions. GRIN Verlag, 2015.
Clark, John. International Dictionary of Insurance and Finance. Routledge, 2014.
Frazer, John, et al. Implementing Enterprise Risk Management: Case Studies and Best Practices. John Wiley & Sons, 2014.
Friedberg, Barbara. Personal Finance: An Encyclopedia of Modern Money Management. ABC-CLIO, 2015.
Gitman, Lawrence, et al. Personal Financial Planning. Cengage Learning, 2013.
Stiglitz, Joseph E. and Mary Kaldor. The Quest for Security: Protection without Protectionism and the Challenge of Global Governance. CUP, 2013.