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Richard Erling

Charles Heldridge
Taylor Kirk
James Morgan

Mario and Meredith Sanchez Financial Guidance Profile

Table of Contents

Statement of Income and Expenses


Balance Sheet
Housing Ratio 1
Housing Ratio 2
Ratios Compared
Emergency Fund Ratio
Debt to Total Assets
Net Worth to Total Assets
Current Ratio
Monthly Payments
CFP Fees and Responsibility
Financial Record Keeping
Refinancing Your Home
Insurance
Settlement Options

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Housing Ratio 1

14.81%

100%

HR 1
Salary

Housing Ratio 1 displays the ratio of all Principle, Interest, Taxes,


and Insurance (PITI) that encompasses your salary. Simply put,
for every dollar you earn, about fifteen cents is dedicated to the
PITI. Housing Ratio 1 should never exceed 25%. Your housing
ratio 1 is far below the recommended limit of 25%.

Housing Ratio 2

27.96%

100%

HR 2
Salary

Housing Ratio 2 is composed of Housing Ratio 1 as well as


other monthly debt payments that include automobile loans,
student loans, bank loans, etc. Basically, Housing Ratio 2 costs
about $0.28 of each dollar you earn on a monthly salary.
Housing Ratio 2 should never exceed 36% of monthly salary.
Your housing ratio 2 is far below the recommended limit of 36%.

Ratios

14.81%
46.57%
27.96%

10.67%

Housing Ratio
1
Housing Ratio
2
Savings Ratio
Total Salary

This page displays the amount of money monthly


(percentage wise) that is spent on housing (analyzed in
two forms) and the amount of money monthly put into
savings. The savings ratio displayed here is not at an
adequate level considering you have three financial goals
that require a saving ratio of 15% or more.

Emergency Fund Ratio


600%
500%
400%
300%

600%

Emergency Fund
Ratio

200%
316.61% 300%
100%
0%
6
Months

EF
Ratio

3
Months

This is your Emergency Fund Ratio (E.F. Ratio). This displays how
many months worth of salary is saved in the instance that both
of you lose your income. You currently have a little over three
months worth saved at this point. The optimal amount to have
saved is between three to six months.
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Debt to Total Assets

44.25%
55.75%

Total Assets
Debt

This is a diagram that displays the total amount of debt you have to the
total amount of assets you own. Simply put, this is showing you that
over 55% of the total assets you is still owed to creditors. The 55% is
appropriate, even if it may seem to be relatively high. This ratio is
commonly high for younger people at or about 80%, where as it is
commonly low for those nearing retirement at or about 10%.
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Net Worth to Total


Assets Ratio

44.25%
55.75%

Net Worth
Total Assets

This chart is a complement to the previous chart, the Debt to


Total Assets chart. This chart is displaying the total amount of
net worth you have in comparison to the total amount of assets
you own. The percentage of debt from the previous chart added
to the percentage of net worth on this chart should equal to
100%.

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Current Ratio

40.81%
59.19%

Cash & Cash


Equivalents
Current
Liabilities

This chart shows the your ability to meet short-term obligations.


Your Current Ratio is at 40.81%. This is not good considering
that a larger current ratio implies more liquidity and may have a
greater ability to pay liabilities as they come due. The goal is to
have a current ratio that is greater than or equal to 1.

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Monthly Payments

Discretionary
Cash Flow
Credit Card

33.99%
55.19%

Vehicle
3.29%

Income

7.53%

This chart displays the amount of money that is being spent on


your three highest expenses. Your highest expense is
discretionary expenses which include going out to eat, hobbies,
maid, etc. Discretionary expenses are expenses that you do not
need to spend money on in order to survive. Your second
highest expense is your vehicle payments and third highest is
credit card payments.

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CFP Fees and


Responsibility

At this point I would like to address the concerns you mentioned in our initial
discussions. Specifically, you were uneasy about commission charges and some of
the stories you have heard regarding the financial services industry.
Unlike many financial planners in the financial services industry, I am a
Certified Financial Planner (CFP). There are a series of educational requirements
for becoming a CFP, the first of which is a bachelors degree. Following that, an
aspiring CFP must complete an educational program overseen by the CFP board. In
addition, they must pass the CFP examination after completing these programs.
Still, before a CFP can actually become certified, they must have at least two years
of experience helping people create financial plans. The CFP certification next to my
credentials means that I have met both the educational and experience
requirements, and am ready to help you with your financial plan.
There are a series of different licenses that allow a financial planner to work with
clients. The series 6 and 7 licenses allow a planner to receive compensation with
either a fee-based or commission-based fee structure. Many of your concerns about
planners with commission-based charges must be considered when dealing with
these type of licenses. Youll notice I dont have either one of these licenses
attached to my name. I hold a series 66 license, which mandates that its holder
receive fee-based compensation only. A licensee with a series 66 is not allowed to
charge based on commission. My license actually prevents me from working on
commission or directly selling you any type of securities, removing a major conflict of
interest. In addition, this license comes with a fiduciary requirement as a registered
investment advisor. Basically, this fiduciary requirement mandates that a financial
planner act with the clients best interests in mind, rather than their own interests.
This requirement is backed and enforced by the CFP Board.
The horror stories you reference actually dont involve true financial planners.
Unfortunately, the CFP designation is not well regulated at this time, so many can
legally claim to be financial planners without having actually completed the
requirements to become a CFP Professional. However, you can determine who the
real financial planners are by looking at the CFP designation and the licenses next
to their name. For example, I have the CFP designation and a Series 66 license,
which signals that not only am I an accredited CFP Professional, but I have a
fiduciary responsibility as a registered investment advisor.
Ultimately, most of your concerns are addressed by the requirements of my
accreditation and license. Becoming a CFP Professional requires an educational
requirement beyond a bachelors degree and an experience requirement of at least
two years of working directly with clients to create financial plans. The license I hold
requires me to put your interest firsts and will not allow me or any colleagues with
the same license to charge on commission. When it comes to your financial plan,
your needs will come first in every step of the process.
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Financial Record
Keeping
Since you are concerned with financial record keeping, here are a few steps that should
help you organize and secure your confidential financial information:

1.
Collect all your financial documents together and store them in an
accessible yet protected place. A fireproof safe would be an ideal location for
these documents. If you want to keep paperless records, set up a file system on
your computer (and back it up on a secured device).
2.
Organize all financial information into separate files. Some suggested
examples for these files:

Financial/legal advisors (names, contact information)

Your financial goals childrens college funds, retirement plan, and debt
repayment plan

Bank accounts include your savings, checking, and CD accounts here

Investment information investment portfolio information

Information and documentation for personal use assets everything listed


on the balance sheet under personal use assets (home, boat, vehicles, etc)
3.
Take measures to protect your financial information from identity theft.

Shred all documents before disposal.

Do not carry around sensitive information (such as your Social Security


number) on your persons. Keep that information in a safe place at all times.

Install antivirus software and keep your computer updated at all times to
protect electronic information.

Use strong passwords to protect online information (use different


passwords for different accounts).
4.
Update and recognize financial information periodically to reflect changes.
Source list:
http://personalfinanceinsider.com/financial-records-101-financialrecordkeeping-made-easy/
http://www.forbes.com/sites/financialfinesse/2013/06/27/how-to-protect-yourfinancial-privacy/
https://www.consumer.ftc.gov/articles/0272-how-keep-your-personalinformation-secure
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Refinancing Your
Home

15 year
4.2% loan is $1391

per month
HR1: 12%
HR2: 25%
Savings Ratio:
10%
Lifetime Savings:
Over $150,000

30 year
4.6% loan is $951

per month
HR1: 8%
HR2: 21%
Savings Ratio:
18%
Lifetime Savings:
Over $60,000

Both of these options have their benefits and their


fallbacks. The 15 year option does increase the overall
monthly expense and does decrease the housing ratios
and savings ratio dramatically, but the lifetime savings
increase to $150,000. The 30 year option does
decrease the overall monthly expense and increase the
housing ratios and savings ratio, but the lifetime
savings will only be $60,000. FC CFP recommends
the 30 year option out of the two due to the increase in
the savings ratio (which would exceed the 15%
minimum recommendation) and it will still increase the
lifetime savings. Note: both monthly payments do not
include interest, taxes, and insurance.
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Insurance

A split limit policy of $50k/$100k/$50 for liability


limits and $500 deductibles means that Mario and
Meredith are covered for up to a maximum of $50k
for bodily injury coverage per person, $100k for total
bodily injury coverage per accident, and $50k in
total property damage liability coverage per
accident.

Mario and Meredith will only have to pay the first


$500 in damages, the insurance company will cover
the rest, up to $50,000.

Having your home covered 100% of its actual cash


value and the replacement cost coverage means
that the house is completely covered in the event of
a loss or some kind of disaster.

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Settlement Options

In regards to your last question; the Federal Deposit


Insurance Corporation (FDIC) recently raised the
standard insurance amount from $100,000 to $250,000
per depositor, per insured bank, for each account
ownership category. Meaning if you were to want to not
take any risks and put them in a savings or checking
account, you could open two individual accounts (one
for each of you) with $200,000 each, and one joint
accountat another bankwith $400,000; the FDIC
would insure the full $800,000.

FDIC insurance covers all deposit accounts, including:

Checking accounts

Savings accounts

Money market deposit accounts

Certificates of deposit

The FDIC does not cover investment products such as:

Mutual Funds

Annuities

Life insurance policies

Stocks

Bonds

Money Market Funds


It also does not cover any deposits at non-FDICinsured institutions.
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