Todd and Sarah Wilkinson

Financial Portfolio

Andrew Mickael
Christina Lavarn
Wisawan Kunchaethong
Christian Olivera

FIN 3330.001
Jared Pickens

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Table of Contents
Statement of Net Worth..

Statement of Cash Flows.....

Top 10 Spending Areas...

Financial Ratios..

Fee Structures and Fiduciary Responsibly.....

Financial Record Keeping...

Home Refinancing..

Insurances

10

PowerPay....

10

Recommendations...

11

Citations..

12

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Statement of Net Worth

Mr. and Mrs. Wilkinson
Balance Sheet as of 12/31/2013
Assets

Liabilities and Net Worth

Current Assets

Current Liabilities

JT

Checking

2,000.00

JT

BB National Credit Card

5,237.00

JT

Savings

2,300.00

JT

Sears Credit Card

6,200.00

JT

Bank CD

3,000.00

Total Current Liabilities

Total Current Assets

11,437.00

7,300.00
Long-Term Liabilities
JT

Infiniti Loan

42,000.00

401(k) Plan

Investment Assets
$ 108,657.00

JT

Harley Davidson Loan

18,000.00

401(k) Plan

65,581.00

JT

Primary Mortgage

$ 178,000.00

JT

Brokerage Account

3,700.00

Student Loans

37,380.00

Roth IRA

4,295.00

JT

Jeep Loan

8,500.00

Total Invested Assets

$ 182,233.00
Personal Use Assets

JT

Jewelry

3,500.00

JT

Boat

8,000.00

JT

2007 Jeet Patriot

9,000.00

JT

2010 Infiniti E35

38,500.00

JT

Furniture

12,300.00

JT

Harely Davidson

21,000.00

JT

Primary Home

$ 271,980.00

Total Personal Use Assets

$ 364,280.00

Total Assets

$ 553,813.00

Total Long-Term Liabilities

$ 283,880.00

Total Liabilities

$ 295,317.00

Total Net Worth

$ 258,496.00

Total Liabilities and Net Worth

$ 553,813.00

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Statement of Cash Flows

Mr. and Mrs. Wilkinson
Annual - As of 12/31/2013
Cash Inflows
Sarah's Salary
Todd's Salary
Dividend/Interest Income

Totals
$ 72,000.00
$ 96,000.00
$ 1,440.00
Total Cash Inflows

Cash Outflows
Savings
Cash Savings contributions
Todd's 401(k) contributions
Sarah's 401(k) contributions
Todd's Roth IRA contributions
Dividend/Interest Reinvestment

$ 169,440.00

$
$
$
$
$

7,200.00
3,600.00
3,600.00
2,760.00
1,440.00

Total Savings
Debt Payments
Mortgage Payment
Infiniti Payment
Jeep Payment
Student Loan Payment
Sears CC Payment
BB National CC Payment
Harley Payment

18,600.00

40,260.00

61,908.00

4,416.00

$ 21,324.00
$ 5,376.00
$ 3,360.00
$ 3,360.00
$ 2,400.00
$ 2,340.00
$ 2,100.00
Total Debt Payments

Living Expenses
Child Care
Groceries
Entertainment
Dining Out
Maid
Charity
Gas
Hobbies
Landscaping
Home Repairs
Dry Cleaning
Club Dues
Cell Phone
Cable
Internet
Water
Parking and Tolls
Alarm System

$ 14,400.00
$ 6,000.00
$ 4,800.00
$ 4,800.00
$ 4,800.00
$ 4,200.00
$ 3,600.00
$ 3,600.00
$ 3,600.00
$ 2,400.00
$ 1,920.00
$ 1,800.00
$ 1,560.00
$ 1,260.00
$ 1,200.00
$
960.00
$
540.00
$
468.00
Total Living Expenses

Insurance Payments
Life Insurance
Auto Insurance

$
$

1,200.00
3,216.00

Total Insuarance Payments

Taxes
FICA & Income Tax

9,600.00

Total Taxes
Total Savings, Expenses and Taxes

$
9,600.00
$ 134,784.00

Net Discretionary Cash Flow

34,656.00

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Top 10 Spending Areas

$300.00 ,
7%

$200.0
0 , 5%

Child Care

$300.00 , 7%
$1,200.00 , 28%

Groceries
Entertainment
Dining Out

$300.00 , 7%

Maid
Charity
Gas

$350.00 , 8%
$500.00 , 11%

Hobbies
Landscaping
Home Repairs

$400.00 , 9%
$400.00 , 9%
$400.00 , 9%

Financial Ratios
Ratio

Actual
Liquidity Ratios
Current Ratio
0.64
Emergency Fund Ratio
1.62
Debt Ratios
Housing Ratio 1
12.58%
Housing Ratio 2
23.76%
Performance Ratios
Savings Ratio
10.98%

Target
[1.0, 2.0]
[3.0, 6.0]
<= 28%
<= 36%
[10%, 13%]

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Questions
1.) Todd and Sarah are very sensitive to commission charges and expenses. Furthermore,
they are concerned with the recent horror stories they have heard about in the financial
services industry. Assuming that you are a CERTIFIED FINANCIAL PLANNER
Practitioner, explain to your clients the different types of fee structures a planner can
charge and elaborate on the process required to get your designation. Finally, explain
fiduciary responsibility and why it is or isnt important.
According to Certified Financial Planner Code of Ethics and Professional
Responsibility, there are 4 types of fee structures a financial planner can charge and elaborate on
the process required to get clients designation.
1. Fee only fee only describes the compensation that a financial planner receives from a
specific client, so a financial planner may charge a client by a flat fee, an hourly fee, a
percentage of assets under management, or a percentage of income from investments. However,
a planner does not accept any commissions or compensation from any other transection fees.
2. Fee based a financial planner charges the clients a fee for advice and planning as well
as earns commissions.
3. Commission only the commission can be charged from transaction involving a
product or service. This includes 12(b)1 fees, trailing commissions, surrender charges, and
contingent deferred sales charges.
4. Fee-offset - a financial planner charges a fee for the planning services, but then will
apply the commissions received to reduce the cost of the initial plan.
According to CFP Boards Sanction Guidelines, the fiduciary responsibility for financial
planner is that a planner must act the best interest of the client ahead of his or her own as
required by Rules of Conduct - Rule 1.4 and fiduciary responsibility applies only when a
financial planner providing financial planning.
Fiduciary is important because it shows the power to act on behave of another in
situations that require great trust and care, honestly, and loyalty.

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2.) Todd and Sarah are curious about financial record keeping for their important
documents. Please write a summary advising Todd and Sarah on what to do with
important and confidential financial records. Please use three outside references and list
the sources for these specific questions.
There are so many ways to help Wilkinsons family keep their financing records for their
important documents. In brief, there are 4 simple steps they need to know and to follow.
1. Gather all documents - the first step is to locate all of the documents and related
information. This can be both digital and paper document and phone numbers (Kay).
2. Sort the documents into categories - separate all documents into active and inactive
files and gather them in the categories (Kay). Most important documents fall into one of the
following six categories:
1) Home and property records - mortgage, home insurance, home improvement
2) Auto records - auto insurance policies, loan information and payment records
3) Health records life insurance
4) Financial records bank statements, loan records
5) Electronic records cell phone contracts and manuals
6) Personal records - marriage certificate, social security information
3. Set up a filing system - deciding how and where to store the documents. All important
documents should be stored in a safe place. According to extension.org website, they suggest
that important records can be kept in 4 places:
1) A wallet or purse - some frequently needed items. For example, drivers license
2) A home filing system for often-used documents can be stored within easy
reach at home. Filing in separate folder by using label and color code can help to identify what
is in each folder. For example, bank statements, bills to pay and paid bills.
3) A safe deposit box this is for documents that need to be truly secure. For
example, mortgage paper and original household inventory.
4) A digital storage it is easy and convenient. It also keeps records from getting
lost. FileThis and Mint are some of examples to organize the personal documents (Arar).
However, they should be given the same level of attention and security as paper documents.
According to USA.org website, making back-up copies of important documents and
keeping an extra copy of the completed form in a secure location outside home are also
important. Moreover, in case of an emergency, at least one person in the household needs to be
familiar with the system on how to access information when needed.
4. Review and Discard Unneeded Records make sure to keep records in active files and
discard unneeded records but shred papers that contain personal information (Financial Records:
Getting Organized).

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3.) Todd and Sarah feel like they will live in their home forever. They are considering
refinancing their home. Todd and Sarah were told by a mortgage broker that they would
qualify for a 4.2% rate on a 15 year or 4.6% on a 30 year mortgage. Provide an analysis
showing the pros and cons of each decision. Remember to look at financial ratios.
Remember that Todd and Sarah are very visual learners. Assume that refinance costs are
$5,500 and can be rolled into the new loan if needed.
The three mortgage financing options can be broken down as follows:
1. 30 year mortgage with a 6.6% interest rate, this is their current plan.
a. Monthly payments of $1,277.32, this is in the middle of the pack.
b. They will pay $259,834.35 in total interest
c. This plan will cost $459,834.35 in total. This is the costliest plan of the three.
d. This plan will result in a Housing Ratio 1 of 12.58% and a Housing Ratio 2 of
23.76%. This plan is in the middle of the pack when it comes to housing ratios.
2. 15 year mortgage with a 4.2% interest rate.
a. Monthly payments of $1,334.56, this plan has the highest monthly payments.
b. They will pay $62,220.01 in additional interest, this plan incurs the least
interest.
c. This plan will cost $367,018.94 in total. This is the least costly of the three.
d. This plan will result in a Housing Ratio 1 of 12.99% and a Housing Ratio 2 of
24.17%. This plan has the highest housing ratios of the three.
3. 30 year mortgage with a 4.6% interest rate.
a. Monthly payments of $912.51, this plan has the lowest monthly payments.
b. They will pay $150,502.51 in additional interest, this is in the middle of the pack.
c. This plan will cost $455,301.44, this is in the middle of the pack.
d. This plan will result in a Housing Ratio 1 of 10.00% and a Housing Ratio 2 of
21.18%. This plan has the lowest housing ratios of the three.
What all this means:
This data can be prioritized by three different measures:
1. Monthly payments
2. Total cost
3. Time
Prioritizing by monthly payments will enable them to set aside more money for savings or other
expenses and will provide the best housing ratios. Housing ratios can be thought of as a kind of
affordability index. There are two different housing ratios:

Housing Ratio 1
o This ratio compares their mortgage payments + insurance and taxes with their
monthly income.
o They generally want to keep this ratio below 28%.
Housing Ratio 2
o This ratio compares their mortgage payments, insurance, taxes and all other
recurring debt payments with Their monthly income. These can include credit
card and student loan payments.
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o They generally want to keep this ratio below 36%.

All of their options stay well below the recommended maximum, so they are flexible in this
regard. However the lower their housing ratios the more money they can devote to savings or
other expenses. If this sounds like their priority then Option 3 provides the lowest monthly
payments and ratios. Be aware that this option is also significantly costlier than Option 2 in the
long run and will also result in the longest mortgage.
Prioritizing by total cost will allow them to pay the least amount of money in the long run. In
calculating total costs we also took into consideration previous interest expenses and a $5,500
refinancing fee. If they wish to pay the least amount of money possible then Option 2 is the least
costly of the three. Be aware that this option also carries higher monthly payments and housing
ratios.
Prioritizing by time will provide them with the shortest mortgage so they can own their home
outright sooner. The total amount of time for each option is as follows:

Option 2: 23 years, 15 years remain

Option 1: 30 years, 22 years remain
Option 3: 38 years, 30 years remain

If they wish to have a mortgage for the least amount of time possible then Option 2 is preferable.
Again, be aware that this option carries higher monthly payments and housing ratios.
To recap:

Option 1
o Average length
o Average monthly payments and ratios
o Most costly
Option 2
o Least costly
o Shortest
o Highest monthly payments and ratios
Option 3
o Lowest monthly payments and ratios
o Average cost
o Longest

Pro, Neutral, Con

Adjusted Housing Ratios

HR1
Option 1
12.58%
Option 2
12.99%
Option 3
10.00%
TI = $
499.68

HR2
23.76%
24.17%
21.18%

Mortgage Refinancing
Option 1 - 30 years @ 6.6%
Monthly Payment
$ 1,277.32
Total Interest Paid
$259,834.35
Total Cost
$459,834.35
Option 2 - 15 years @ 4.2%
Monthly Payment
$ 1,334.56
Previous Interest Paid $ 99,298.93
Additional Interest
$ 62,220.01
Total Interest Paid
$161,518.94
Refinancing Fee
$ 5,500.00
Total Cost
$367,018.94
Option 3 - 30 years @ 4.6%
Monthly Payment
$
912.51
Previous Interest Paid $ 99,298.93
Additional Interest
$150,502.51
Total Interest Paid
$249,801.44
Refinancing Fee
$ 5,500.00
Total Cost
$455,301.44
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4.) Todd and Sarah are concerned if they have adequate insurance for their auto, home and
life. They have a split limit policy of $50k/$100k/$50 for liability limits and $500
deductibles, but they dont understand what this really means. Todd and Sarah also have
their home insured 100% of its actual cash value and they have replacement cost coverage
on their property. They would like you to explain to them what these numbers mean and
provide guidance if needed.
A split limit policy is typically comprised of three separate amount of liability limit: the
amount of individual bodily injuries, the amount of total bodily injuries per accident, and the
amount of property damages. The Wilkinsons policy is broken into a 50/100/50 split; this is
translated to a maximum of $50,000 for each person, $100,000 for each accident, and $50,000
for property damages that the insurance company will cover. Any amount over the stated
amounts will have to be paid by the Wilkinson out of pocket. The minimum coverage required in
Texas is 30/60/30, and their current insurance exceeds that, however; the Wilkinson can choose
to increase their coverage for additional protection for a higher price. The $500 deductibles
indicate how much the couple has to pay out of pocket before the insurance can start covering
the costs.
Replacement cost is how much the Wilkinson has to pay to replace their property at
todays cost. Actual cash value is how much the Wilkinson has to pay to replace their home at
todays cost (fair market value) plus depreciation, or replacement cost minus depreciation.
Though more expensive, replacement cost provides a better coverage than actual cash value
because there is a greater reimbursement if a loss occurs.
5.) Todds mom has the following debts which they are highly worried about. They would
like to know your recommendation for paying down their debt. Please use PowerPay to
show her current schedule and consider how to pay down the debt with an extra $300 per
month assuming that Todds mom (Nancy) can do cut that in her budget. Please provide a
new plan and show how much money she will be saving by allocating $300 per year. Show
her the importance of making debt repayment a priority!
By using PowerPay and using highest interest first as the repayment method and having
an extra $300 a month, the payment plans changes drastically. The number of payments is
reduced and the overall total paid is reduced. There would also be a difference in total interest
paid and the payoff time would be 5 years. Summing up the totals using PowerPay, the total paid
will come to a total of $129,733.55 and the interest paid will come to $17,257.56. If they didnt
use PowerPay, the payoff time would be 9 years and 9 months. The total paid would have been
$140,213.12 and the interest paid would have been $27,737.12. So the benefits for using
PowerPay would be a time reduction of 4 years and 9 months and the amount saved would be
$10,479.56.

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By using PowerPay and using highest interest first as the repayment method and only
allocating $300 a year, there is a difference, but not a significant difference between using
PowerPay and not using it. If they were to use PowerPay, the payoff time would be 5 years and
10 months with a total paid of $133,390.40 and an interest paid of $20,914.40. If they didnt use
PowerPay, the payoff time would 9 years and 9 months with a total paid of $140,213.12 and an
interest paid of $27,737.12. Also 3 of the 5 accounts would have a reduction of number of
payments by using this program. And the benefits for using PowerPay would be a time reduction
of 3 years 11 months and a total amount saved of $6822.72.

Recommendations
Some recommendations the Wilkinson should consider to lower expenditures in the
household are to either reduce the amount of times the maid cleans the house to at least half
making the expense $200 having an additional $200 a month in their pocket, or a better decision
to reduce their expenses is to cut off the cleaning services completely and have an additional
$400 a month. The same can be done with the landscaping. If they reduce the amount of times
they get their landscaped serviced, they will have $150 extra a month. But if they cut the service
completely they can have $300 more a month. If the Wilkinson follow these recommendations,
they can have anywhere from $350-$700 extra a month putting them in a better, stronger
financial position.

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Citations
Arar, Yardena. "FileThis: A Better File Cabinet for the Digital Age." PCWorld. 7 Jan. 2014.
Retrieved October 12, 2014 from http://www.pcworld.com/article/2084882/filethis-abetter-file-cabinet-for-the-digital-age.html.
Certified Financial Planner - Code of Ethics and Professional Responsibility. July 2003.
Retrieved October 12, 2014 from http://www.cfp.net/docs/for-cfp-pros---professionalstandards-enforcement/coe.pdf?sfvrsn=2.
CFP Boards Sanction Guidelines (n.d.). Retrieved October 12, 2014 from
http://www.cfp.net/docs/for-cfp-pros---professional-standardsenforcement/cfpboard_sanction_guidelines_2012-07.pdf.
Financial Records: Getting Organized. Department of Financial Insititutions. Retrieved October
12, 2014 from http://www.in.gov/dfi/FINRecords.PDF.
Kay, Sue." How to Organize Their Paper Documents. Retrieved October 12, 2014 from
http://workingmoms.about.com/od/finances/a/How-to-Organize-Paper-Documents.htm.
Managing Household Records. USA. Government. Retrieved October 12, 2014 from
http://www.usa.gov/Topics/Money/Personal-Finance/Managing-HouseholdRecords.shtml.
Organize Their Important Household Papers: Print This Lesson. EXtension. 28 Oct. 2012.
Retrieved October 12, 2014 from http://www.extension.org/pages/11023/organize-Theirimportant-household-papers%3A-print-this-lesson#.VDouDPlSaxV.

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