Billy Tan just graduated with a Mechanical Engineering degree and secured a new job with a starting annual salary of $ 36,000. There are a few things that he would like to do
with his newfound “wealth.”
As a fresh graduate, he needs to begin repaying his student loans (amounting to $ 20,000) and he also likes to reduce some outstanding balances on his credit cards (amounting to $ 5,000). Billy also needs to purchase a car to get to work and would like
to put money aside to purchase a condominium in the future. Last, but not least, he wants to put some money aside for his eventual retirement.
He would like to do some financial planning for which he has selected a 10year time frame. At the end of 10 years, he would like to have paid off his current student loan and credit card debt, as well as have accumulated $ 40,000 for a down payment on a condominium. If possible, Billy would like to put aside 10% of his take home salary for
retirement. He has gathered the following information to assist him in his planning:
• Student loans are typically repaid in equal monthly installments over a period of ten years. The interest rate on Billy’s loan is 8% compounded monthly.
• The monthly minimum credit card payments are usually computed using a 10year repayment period. The interest rate on Billy’s credit card is 18% compounded monthly.
• Car loans are usually repaid over three, four, or five years. The interest rates on a car loan can be as low as 2.9% (if the timing is right) or as high as 12%. As a firsttime car buyer, Billy can secure a $ 15,000 car loan at 9% compounded monthly to be repaid over
60 months.
• A 30year,fixed rate mortgage is currently going for 5.75% to 6.0% per year. If Billy can save enough to make a 20% down payment on the purchase of his condominium, he can avoid private mortgage insurance that can cost as much as $ 60 per month.
• Investment opportunities can provide variable returns. “Safe” investments can guarantee 7% per year, while “risky” investments could return 30% or more per year.
• Billy’s parents and older siblings have reminded him that his monthly takehome pay will be reduced by income taxes and benefit deductions. He should not count on being able to spend more than 80% of his gross salary.
Additional requirements:
a) After Billy’s car is paid off, he plans to continue setting aside the amount of his car payment to accumulate funds for the car’s replacement. If he invests this amount at rate of 3% compounded monthly, how much will he have saved by the end of the initial 10year
period?
b) Billy has planned to have $ 40 000 at the end of ten years to place a down payment on a condo. Property taxes and insurance can be as much as 30% of the monthly principal and interest payment (i.e. for a principal and interest payment of $ 1000, taxes and insurance would be an additional $ 300). What is the maximum purchase price he can afford if he would like to keep his housing
costs at $ 950 per month?
c) If Billy is more daring with this retirement investment savings and feels he can average 10% per year, how much will he have accumulated for retirement at the end of the 10year
period?
As Billy’s friend, you have been asked to review his financial plans. How reasonable are his goals? Support your findings with appropriate computations using Excel and prepare
a Powerpoint presentation for your client. State your assumptions clearly.
I need ur help . thx

This is my second post to this question, because after reading your responses I realized there is quite a bit of information that you need to give me a more precise response. So here it is…

In 2005 my then fiancee was in a no fault near-fatal car accident. He raked in over $ 200,000 in medical bills and was unemployed at the time, since he had just graduated from college. For some reason his parents had let his health insurance lapse under the assumption that he would find a job before he needed any medical treatments.

Since I had also just graduated, i was also unemployed so I decided rather then to find a job to help nurse him through his rcvoery. I returned to work in Sept and he in Jan of 2006. We began paying off what we could on our small incomes but his parents were not helping us at all, and my parents were doing as much as they could afford to, but we slowly began to fall further and further behind on our bills.

In August of 06 I began law school thinking that it wouldn’t hurt us too bad financially since I had a few small scholarships and loans. But I was soo wrong. We again began to slip on our bills and even after we both picked up part time jobs, it was to late. I decided not return to law school until we were paid up on all our bills (and hope to finally return to school next fall). We were able to get his med. bills down to $ 23k, which is a big drop from the original $ 234k bill, but still a very large number.

We have been curent on our bills for over 12months and have been advised by all the mortgage brokers we have spoken to not to pay any more of his medical bills due to the amount of time that has past. There is no more money (that we know of) coming from his accident and we used what we did get from insurance to buy him a new car and pay some of the bills. We make decent money now, pay for everything with cash, but occasionally use our credit cards to show the creditors that are able to use them pay them off on time. We make fairly decent money for our age and that is how we are albe to put so much into our investments and savings. Oh and we have 2 cars paid in full. I hope this helps.

My original question is posted below, and thank you so much for your feedback, it is very honest but helpful.

“My husband and I are interested in buying our first home for approximately 130k. Our credit scores are both around a 530-540. We have 15k in savings, and decent 401ks and IRA’s. We earn alittle over 6k/month but keep getting turned down for mortgages. When we were younger we made some very bad decisions and our credit was hit fairly hard, but we have paid ALL of the balances off. Why aren’t we getting approved, and what do we need to do to move into our first home???

Please help…”