David and Monique are seeking investment advice. Please base your answers regarding investments on the surplus money available each month from the income and expenses provided.
David’s salary is $6,093 per month after taxes, vision insurance and 10% toward retirement in a 401(k)
Monique’s salary is $3,900 per month after taxes, health insurance, dental insurance, flexible spending account for health care costs, dependent care account for child care and 10% toward retirement in a 401(k)
Their rental property brings in an average of $700 per month in rental income
Auto #1: $430
Auto #2: $375
Mortgage on Residence: $2500
Mortgage on Rental Property: $333
Average Utility Bill: $250
Groceries, Drugstore & Dog Food: $700
Cable TV, Internet & Netflix: $100
Child Care: $800
Non-Health Insurance: $250
Student Loans: $500
Kid’s Activities: $100
Lawn Maintenance/Snow Removal: $170
David and Monique each routinely take $50 out of the ATM each week to spend on lunch, incidentals and general shopping
They currently have $6000 in their emergency fund, $3500 in their home improvement fund and $1000 in their rental property improvement fund.
Retire comfortably at age 65 with enough disposable income to travel (current ages 33 and 35)
Help their 2 children pay for college (current ages 4 and 6), if possible. If they cannot pay the entire amount, they would like to know how much they could pay.
Have an emergency fund to cover 3 months worth of mandatory living expenses (You will need to determine which expenses are mandatory, based on the expenses provided)
Renovate a small guest cottage on the property of one of their rental property that could be used as an additional vacation rental. They have already completed demolition and debris removal on the cottage where needed and have replaced the roof.
Renovate their primary residence.
Cash in bank: $10500
Retirement Funds: $200,000
Other Stock: $1,800
Savings Bonds: $2,600
6 year old’s 529 Plan: $4,500
3 year old’s 529 Plan: $3,000
Rental Property: This is a 2 bedroom, 1 bathroom vacation rental property on a lake in the mountains that David and Monique enjoy when it is not rented out. They recently renovated the property. The property can be rented for $200 per night or $1000 per week, slightly less in winter. Winter renters can be hard to come by, as the ski area is only run by volunteers and doesn’t receive much publicity. The boiler is old and although it’s been repaired recently, they worry about replacing it. David and Monique have no intentions of selling this rental property. The property includes a small cottage behind the main
house that is in need of repair. At present it needs to be tied into the main sewer and water line (or the septic tank needs to be pumped). They aren’t sure if this is possible or affordable. It has one bathroom, a kitchen and a bedroom area. They can choose to rent it as a standalone rental for approximately $100/night in the summer or rent it as an add on to the main house in the summer for $75-$100. The two properties share a yard and the beach. Cleaning fees on the cottage would average $15/renter and average $30/renter on the main property, but if combined would likely total $35/renter.
Primary Residence: This was purchased two years ago. The appliances, boiler and hot water heater were replaced this year and new tile was installed in the lower level and office in addition to lots of painting and some removal of overgrown landscaping. David and Monique have lots of plans for the home, but they are mostly cosmetic. They are both very handy and enjoy home improvement projects. They would like to replace the old carpet in their living room and dining room with tile and the kitchen cabinets are falling apart and in need of replacement.
How much should they be saving monthly (in $) for retirement? Do they have this available based on the budget you put together? If not, what could they do?
o Hint: CNN Money has various retirement calculation tools. Take a screenshot of the suggestions from the data you entered and explain them.
How much should they be saving monthly (in $) to put their children through a 4 year private school? Can they afford this? What about a 4 year state school? Can they afford this? What about 2 years of community college and 2 years of state school? Can they afford this?
o Note: You may choose any actual school tuitions for purposes of this program, but you need to tell me what schools they are (i.e., State School: University of Colorado; Private School: University of Denver; Community College: Red Rocks CC)
Should they rebalance their existing retirement portfolio? If so, how so?
o Hint: use Morningstar Instant X-Ray tool. Take a screenshot and explain it.
What should be their goal for emergency fund savings? How much can they afford to save per month toward this goal? How long will it take them to reach this goal? Where should they put this savings? Why?
How much can they allocate towards renovating the vacation rental property? What projects should they tackle first?
Can they afford to renovate their primary residence? If so, how much can they allocate? How can they maximize this investment?
How much money do they have available for short term savings to be used to fund annual vacations, new clothes, etc. under your plan?