Financial Planning
Essay title: Financial Planning
Before the Marcottes begin an investment plan, their personal financial affairs should be in good shape. Several factors they should consider to perform a financial checkup before making their first investment, which is to work to balance their budget, obtain adequate insurance protection, start an emergency fund, and have access to other sources of cash for emergency needs (Hughes, 2004). Below are all the factors being explained in details.
In working out to balance a budget, many individuals regularly spend more than they earn. They purchase items on credit using their credit card and then they obtain monthly installment payment that pays interest around 12 to 15 percent per year (Hughes, 2004). With such situation, it is difficult to start an investment program until these credit card installment purchases are reduced or eliminated. Therefore, the Marcottes should limit their credit purchases to only the necessities or to purchases required to meet emergencies (Hughes, 2004). A good method is to limit consumer credit payments to 20 percent of their net income. Eventually, the amount of cash remaining after the bills are paid will increase and can be used to start a savings program or finance investments (Hughes, 2004).
It is also essential for the Marcottes to obtain adequate insurance protection before beginning an investment program. The types of insurance and the amount of coverage will vary from one person to the next (Hughes, 2004). Before the Marcottes begin investing, they need to examine the amount of their insurance coverage for life insurance, hospitalization, their home and other real estate holdings, automobiles, and any other assets that may need coverage (Hughes, 2004).
It is also advisable for the Marcottes to start an emergency fund, which is an amount of money they can obtain quickly in case of immediate need (Hughes, 2004). This money should be deposited in a savings account paying