Facts about your life:
- You are 35 years old
- You have a non-working spouse (same age)
- You have one child, age 3.
- Annualgross income = $110,000
- Your monthly expenses total $3,500
- Monthly debt payments are $400 (counted in the $3,500)
- Tax-specific Information:
- Adjusted gross income = $75,500
- Itemized deductions = $15,500
- Child care tax credit = $500
- Federal income tax withheld = $6,250
- Amount for personal exemptions = $12,500
1.You and your spouse want to start an emergency fund
a.How much should the emergency fund contain?
b.How much should you put in the bank RIGHT NOW, if you can earn 7% interest, so that your emergency fund is fully funded after 4 years?
2.You and your spouse wish to start a savings plan so that you can buy a house when the baby gets a little bigger
a.If you save $200 every month for the next 5 years, how much money will be in your savings plan if you can earn 5% interest?
b.Suppose you stop saving after five years. Approximately how long will it take your savings to double if you continue to earn 5%?
c.Suppose you see an alternative savings account that advertises the following: “Earn $90 on a $2,000 investment this year.” What is the annual percentage yield for this savings account offer?
3.It’s time to pay your taxes! If the tax rate on your taxable income is 20%, will you receive a refund this year or have to pay additional taxes to the IRS?
4.The kids are getting too big for your apartment, so it’s time to buy a house! Your bank is offering a traditional 30-year mortgage at 6%. You intend to put 10% down (which is feasible because you’ve been saving for the last five years), and you figure property taxes and insurance will amount to $200/month
a.What is an affordable mortgagepaymentfor your situation?
b.What is an affordable mortgageamountfor your situation
c.What is an affordable purchase price for your situation?
5.You want to ensure your children’s futures are protected
a.Use the “non-working spouse” method of calculating how much life insurance you should purchase to ensure your children can be cared for if you die.
b.You also want to ensure your children will have enough money for college. You know that right now college costs $10,000 per year. You just read that college expenses are expected to increase 2% annually.
i.How much money will you need to have saved by the time your oldest child is ready to head to college when they are 18? You goal is to have 4 years-worth of college expenses sitting in the account when your child turns 18.
ii.You decide to save $250 per month for your child’s education. You figure you can earn 6%. Will you have enough money saved to pay for all of your child’s education? Explain.
6.You are exhausted at this point from buying a house, managing your taxes, learning about life insurance and saving for college….but you know that it’s never too early to start saving for retirement!
a.After a careful analysis of your retirement needs, you figure that you will need to have $750,000 in your total retirement nest egg to meet your goals. You have managed to save $25,000 in an IRA that you assume will earn 9% until your retire at age 65 (you plan to leave it untouched until then).
b.Suppose you can also earn 9% on your 401k account investments.
i.How much would need to accumulate in your 401K account at work to reach your goal from above?
ii.How much should you be saving per year in your 401k account to accomplish this?