Personal Finance - Financial Planning
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When Nina opened the letter from her aunt, she discovered a wonderful surprise. "My aunt has given me a gift of $12,000!" "Why would she do that?" mused Kevin. "I guess her investments have increased in value by much more than she needs. She wants to share it with family members." Nina shrugged, still in a little bit of shock. "I wonder what I should do with the money?" "Oh, I have some suggestions for you . . ." Kevin said. Recovering herself, Nina teased, "Wait a minute! When did this become our money?" Kevin threw his hands in the air. "Hey, I just thought I'd offer some ideas." After some discussion, Nina considered the following uses for the money:
Credit card debt —use a portion of the money to pay off credit card bills from her last vacation.
Savings —set aside money for a down payment on a house.
Long-term investments —invest the money in a tax-deferred retirement account.
Career training —use the money for technology certification courses to enhance her earning power.
Community donations —contribute funds to a homeless shelter and a world hunger-relief organization.
"Wow, I could easily use $100,000 instead of $12,000!" Nina laughed. "So what should I do?" "Some financial advisors recommend not doing anything for at least 6 months," warned Kevin. "You might be tempted to buy on impulse instead of spending the money on things with lasting value." "Well now I'm really not sure what to do!"
Questions
1. Which additional information might be necessary to know about Nina before determining which areas of financial planning should be her top priority?
2. How might time value of money calculations be used by Nina in her decision-making process?
3. What actions do you recommend that Nina take before making a final decision about the use of
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Solution Summary
This solution explains personal finance and time value of money. The sources used are also included in the solution.
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Step 1
The additional information that might be necessary to know about Nina before determining which areas of financial planning should be her top priority are as follows: It is necessary to know if currently she has adequate accommodation or if she needs immediate accommodation in a house. Also, I need to know if the company where she works offers her pension and other post-retirement benefits and the value of these. I also need to know how much of her earning power will be enhanced with the technology certification courses. Finally, I need to know the value of community donations to Nina.
Step 2
Time value of money ...
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