From a planner's side of the desk, it's important to start at the beginning. Financial planners and clients mutually define a client's personal and financial goals, needs and priorities. The next step is what financial planners call data gathering — financial planners obtain all the quantitative information and documents about a client before any recommendation is made and/or implemented.
Maria eventually found a new job. As such, reasonable assumptions about changes in cash flow due to the new job were factored in the recommendation. As the new job appeared in the middle of the analysis, all work was done on the new cash flow. Information provided included:
- Maria is in her early 40’s, Joseph has just entered his 60’s and Isabella is nine.
- Joseph averages $200,000 per year as a consultant.
- In her previous job, Maria earned $130,000. After a period of unemployment, she became re-employed and now earns $72,000.
- Current cash flow (out) is approximately $150,700 per year plus taxes and business expenses (approx $260,000).
- Liquid assets total $58,000 ($24,000 in a 529 plan).
- Residence value is $389,000.
- Liabilities total $527,030
- Student Loan: $74,000
- Car loans: $24,500
- Mortgage: $368,000 (approximate value of home)
- Credit Counseling group: $43,000
- Retained credit cards: $17,530
- Net Worth: 447,700 – $527,030 = - $79,330.
Assumptions were made regarding decreases in health care costs with the new employer plan, increases in child care, clothing, transportation and various household costs related to re-entering the work force. Known cash flow was used in the recommendations with only minor spending assumptions. Debt management appears to be the most critical aspect of the case, so it was addressed first.
