When you seriously look at your personal financial situation, it can be a daunting task, not unlike climbing a mountain.

The Written Financial Plan:

One of the core services, that we offer our clients on a complimentary basis, is a Financial Needs Analysis (FNA). This is a comprehensive report on where you are financially, TODAY and where you want to be financially, TOMORROW. As a result of the FNA, you will have a detailed "road map" on how to get there. The goal of the FNA is to put money back into your pocket on a monthly basis. If you have a strained budget where there are still days left in the month when the money runs out, the FNA process will eliminate the “strain.” If you have a working budget with no strain, the FNA will optimize your monthly cash flow to ensure that you're actually paying down any debt while building up your available reserves.

Let's Use An Example:

The Smith’s are a family of 4: Bob Smith (age 34) is the main “bread winner” with an annual income of $53,000, Mary (age 32), his wife, has a part time job that generates an additional $15,000. Their son, Peter (age 14) attends the local high school, and their daughter, Barbara (age 10) attends the local junior school. They live in a house valued @ $250,000. Their monthly cash flow is a “strained” $4100, which includes a monthly mortgage payment of $1161 and credit card payments of $800. They have no insurance and minimal savings at best. Following our analysis, the Smith’s implement their Financial Needs Analysis Program. The impact of the FNA is shown in the following table:

Illustration:

	Original Monthly Cash Flow	New Monthly Cash Flow
Bob's Income	$3,200	$3,200
Mary's Income	$900	$900
Total Income	$4,100	$4,100
------------------
Mortgage Principal	$174,000	$200,000
Interest Rate	7.00%	5.75%
Mortgage Payment	$1,161	$1,167
------------------
Credit Card Debt	$26,000	NONE
Monthly Payments	$800	NONE
Total Debt Payments	$1,961	$1,167
Loan Acceleration	NONE	$133
Additional Expenses	$2,139	$2,032
------------------
Life Insurance	NONE	$800,000
Bob	NONE	$500,000
Mary	NONE	$250,000
Peter	NONE	$25,000
Barbara	NONE	$25,000
Monthly Premium	NONE	$75
------------------
Savings	NEGLIGIBLE	GROWING
Bob	"Penny Jar"	$200
Mary	"Penny Jar"	$200
------------------
Monthly Cash Out	$4,100	$3,807
Discretionary Spending	NONE	$293

Assessment:

Give me $6.00 and a 5% reduction in spending! What can I do with that

Let's use the above illustration. Bob and Mary generate $4,100 in total income. Their total cash out totals $4,100 after the mortgage, credit card debt, and miscellaneous expenses. They have no savings to speak of. They have no insurance. They have no discretionary funds to have some fun! Their current mortgage and credit card debt totals $200,000 with total debt payments of $1,961, where their mortgage payment is a healthy chunk of $1,161! They have equity available in their house - so let's refinance them for $200,000, rather than the current $174,000. The net result of that refinance is $6.00 more than they are currently paying. Additionally, I've asked them to consider reducing their additonal spending by a modest 5%. They are currently spending $2,139. Reducing that expense by 5%, they will have reduced their monthly additional expenses to $2,032, saving $107. They've agreed to do this. So let's return to the original question above - What can I do with their $6.00 and the 5% reduction

• Their credit card debt has been eliminated (folded into their mortgage)
  • Their monthly cash out for credit card debt has been significantly reduced from $800 to nothing
  • The impact of rolling the debt into their mortgage has increased their mortgage payment by $6
  • Their interest rate on the home mortgage has been reduced from 7% to 5.75%
  • Their credit card interest is now tax deductable, where it wasn't before
• Total debt payments have been reduced from $1,961 to $1,167, a monthly cash flow savings of $794
• They've agreed to reduce the additional expenses by 5%, the impact of which saves them an additional $107 in monthly cash flow
• Total monthly savings is now: $901!
• Okay, this is a Financial Plan. So what do we do with this nice savings
• Let's start by accelerating the payoff of the mortgage by adding an extra $133 every month to the monthly payment - this will reduce their term by 7 years and 9 months!
• Bob & Mary have NO insurance; their "financial health" is at high risk
  • Both Bob & Mary are in  excellent health
  • For a premium of just $75/month, we are able to insure the entire family for a total of $800,000
  • Bob at $500,000; Mary at $250,000 and each of the kids at $25,000
• Because Bob & Mary have been severely strapped financially, their savings has been devoted to the infamous "penny jar" - so let's start building some savings
  • We will hit Bob for $200/month
  • We will hit Mary for an additional $200/month
  • Combined they are now saving $4,800/yr
• And, finally, we've put $293/month back into Bob & Mary's pocket for discretionary spending or MORE IMPORTANT discretionary saving
• Not bad for increasing the mortgage payments by $6.00 and reducing their expenses by 5% - What do you think

SWEET!!!

Just imagine what we could do for you...

	First Call Mortgage Co., Inc 18 Constitution Drive, Suite 8 | Bedford, NH 03110 Phone 603-622-4100 x19 Fax 603-666-3249

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