Question

Don and Kristen are a married couple. Don works as an engineer bringing home

$50,000 per year and Kristen is a teacher bringing home $30,000 per year. They both
have monthly college loans of $425 each. They rent a one-bedroom apartment for $825
per month. They have not done any financial planning – for current needs or looking to
the future.
1) Explain to Don and Kristen 3 Marco factors they should take into account when
personal finance planning. (Chapter One).
2) Describe to Don and Kristen the 11 steps of the financial planning process.
(Chapter One)
3) Describe to Don and Kristen how using personal financial statements (Chapter
Three) on a regular basis, will help them with their finances.
4) Explain to Don and Kristen how an income and cash flow statement (Chapter
Three) will help them on a monthly basis with their finances.
5) Create a conservative budget with at least 8 budget categories for Don and
Kristen (Chapter Five).
6) Give two examples of micro factors and two example of macro factors that could
effect Don and Kristen’s budget (Chapter Five).
7) Give an example when using a cash budget and cash flow timing would benefit
Don and Kristen (Chapter Five).
8) Explain to Don and Kristen the difference between progressive and regressive
taxes (Chapter Six).
9) Describe to Don and Kristen the different tax strategies for different life stages
(Chapter Six).
10)After reviewing the differences between tax deductions and tax credits (Chapter
Six), give two suggestions to Don and Kristen as they file their tax forms for
2020. You must include a Reference Page citing any sources used in your answers.

Answer 1

1. Three macro factors that Don and Kristen should take into account when personal finance planning are:

• Economic factors: changes in interest rates, inflation, and economic growth can affect their income, expenses, and investments.
• Political factors: changes in tax laws, government policies, and regulations can impact their finances.
• Societal factors: shifts in demographics, cultural attitudes, and social trends can affect their job opportunities, earning potential, and lifestyle choices.

2. The 11 steps of the financial planning process are:

• Determine your current financial situation
• Develop financial goals
• Identify alternative courses of action
• Evaluate alternatives
• Create and implement a financial plan
• Review and revise the plan
• Evaluate progress and revise the plan
• Define your personal and financial goals
• Determine your net worth
• Develop a budget
• Manage your cash flow

3.Using personal financial statements on a regular basis will help Don and Kristen with their finances by allowing them to:

• Track their income, expenses, and net worth over time
• Identify areas where they can cut back on spending or increase their income
• Evaluate their progress towards their financial goals
• Plan for major purchases or expenses
• Prepare for unexpected events or emergencies

4. An income and cash flow statement will help Don and Kristen on a monthly basis with their finances by providing a detailed breakdown of their income and expenses, and how much cash they have on hand. This will allow them to:

• Identify areas where they can cut back on spending or increase their income
• Prioritize their expenses and plan for upcoming bills or payments
• Evaluate their cash flow situation and adjust their spending accordingly
• Track their progress towards their financial goals

A conservative budget for Don and Kristen could include the following eight categories:

• Rent/mortgage
• Utilities (gas, electric, water, internet)
• Transportation (car payment, insurance, gas)
• Groceries/food
• Entertainment (eating out, movies, hobbies)
• Health (insurance, copays, prescriptions)
• Savings (emergency fund, retirement, investments)
• Debt repayment (student loans, credit cards)

Two micro factors that could affect Don and Kristen's budget are:

• Changes in their income (such as raises or bonuses)
• Changes in their expenses (such as unexpected bills or changes in interest rates)

Two macro factors that could affect Don and Kristen's budget are:

• Changes in the national economy (such as a recession or changes in the job market)
• Changes in tax laws or government regulations that impact their income or expenses

1. Using a cash budget and cash flow timing would benefit Don and Kristen in situations where they have irregular or unpredictable income, such as freelancers or commission-based jobs. By tracking their income and expenses on a cash basis, they can better plan for upcoming bills and adjust their spending based on their cash flow.\
2. Progressive taxes are taxes that take a larger percentage of income from higher-income earners, while regressive taxes take a larger percentage from lower-income earners. For example, income tax is a progressive tax because the tax rate increases as income increases. Sales tax is a regressive tax because everyone pays the same percentage regardless of income.
3. Different tax strategies for different life stages could include:

• In the early career stage, focus on maximizing retirement contributions and taking advantage of employer benefits like health insurance and tuition reimbursement.
• In the mid-career stage, consider additional investments and savings for major expenses like college tuition or a down payment on a house.
• In the late career stage, focus on retirement planning and minimizing taxes on retirement income.

10. Two suggestions for Don and Kristen as they file their tax forms for 2020 are:

Consider taking advantage of tax credits: Tax credits directly reduce the amount of tax owed, while tax deductions reduce taxable income. Don and Kristen should review the available tax credits for which they may qualify, such as the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit for education expenses. By claiming these tax credits, they can reduce their overall tax bill.

Be sure to claim all eligible deductions: Don and Kristen should review the list of available tax deductions and be sure to claim all the ones for which they are eligible. This may include deductions for charitable donations, student loan interest, and health care expenses. By claiming all eligible deductions, they can reduce their taxable income and ultimately lower their tax bill.

Step-by-step explanation: