FIN 250 Module 4 Project One Example

Financial Plan, Part One: Budget, Emergency Fund and Debt Repayment

[Student Name]

Southern New Hampshire University

FIN 250: Personal Financial Planning

Project One

[Instructor Name]

[Date]

The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.

Financial Plan, Part One: Budget, Emergency Fund and Debt Repayment

Introduction

Module Two showed that the Dunbars earn enough but keep almost nothing: a net worth of minus $2,600, half a month of savings and a card that barely shrinks. Module Three set the order in which their debts should be paid. This project turns those findings into a budget and a fifteen-month schedule, from October through the end of next year. The plan has to survive two known events: Kayla's twelve weeks of leave after the baby is born in April, when her pay falls, and the start of childcare when she returns in July.

Goals

The plan carries forward the four near-term goals from Module One: a $5,000 starter emergency fund before April 1, the furniture plan paid before its July deadline, the card cleared by December of next year and Marcus enrolled for his employer's match now. The house fund and college account wait until the card is gone, except for a $50 monthly start on the college account after the baby arrives.

The Budget

Rather than set cuts for them, the plan asked each partner to name categories where spending did not feel worth it. They chose dining out and coffee, online shopping, cash withdrawals with no record, Marcus's hunting and truck accessories, subscriptions and gifts. Each was cut, not eliminated, so the budget leaves room for a dinner out and for Marcus's fall hunting trip.

Monthly budget, from October

The cuts total $920 a month. Marcus's 3 percent contribution to his SIMPLE IRA is $153 a month before tax; because it lowers income tax but not payroll tax, take-home pay falls by only about $120. His employer adds another $153, so the couple gains $306 a month of retirement savings for a $120 reduction in spending money. Madrian and Shea (2001) found that many workers who are not automatically enrolled never join their employer's plan, and Marcus had simply never filled in the form.

Irregular Costs

The plan opens a second savings account named "Irregular" and moves $640 into it automatically each payday split. Holiday travel, gifts, registration, repairs and veterinary bills are paid from it. This one change is meant to stop the pattern in which predictable costs land on the card and undo months of progress.

Emergency Fund and Furniture

From October through November, $750 a month goes to the furniture plan on top of its $150 payment, clearing the $1,800 balance at the end of November, eight months before the deadline. The remaining $340 each month goes to savings. In December, with the $150 furniture payment freed, $1,240 a month is available. The first $220 of it completes the $5,000 starter fund, and the rest goes to the card. If Kayla's balance transfer is approved, the payments are the same and the interest saved, about $850, shortens the schedule slightly; the plan below assumes the worse case, no transfer.

The Card

The card receives $1,270 a month from December through March, including its regular $250. During Kayla's leave from April through June, her pay falls to about three-quarters of normal under Washington's paid leave program, roughly $1,170 a month less, so extra card payments pause and only the $250 continues. In July childcare begins. Marcus's mother will keep the baby two days a week, and a center near Kayla's clinic charges about $900 a month for three days. Paying through Kayla's employer's dependent care account saves about $125 a month in taxes, and baby supplies add about $250, which leaves about $215 a month of extra card payments.

Card payoff schedule

Interest is added each month at 24.99 percent, about $1,100 in all, and the card is paid off in December, meeting the goal set in Module One. Marcus's utilization falls below 30 percent by March, so his score should begin to recover well before the card is gone. Amar et al. (2011) note that closing accounts gives people a sense of progress; the furniture payoff in November gives the couple that early win.

Risks

Three risks stand out. First, a large repair or medical bill could exceed the $5,000 fund; the irregular account and the fund together give two layers before the card is touched. Second, childcare could cost more if Marcus's mother cannot help, adding about $500 a month; the plan would then stretch the card payoff by about six months rather than return to borrowing. Third, the truck: it is worth less than its loan, and if it were totaled, insurance would pay its value, not the balance. Module Five will check whether the couple has gap coverage. The Federal Reserve's survey shows how often households facing a modest surprise turn to borrowing (Board of Governors of the Federal Reserve System, 2024), which is why the emergency fund comes before faster debt repayment.

Next Steps

When the card is paid, the $465 a month and the $250 freed from the card will grow the emergency fund until it covers three months of essential expenses, about $16,000, and then turn to the truck loan and the house fund. Project Two will set the retirement and investment plan that grows from here.

Conclusion

By cutting $920 a month in places they chose, funding irregular costs separately and claiming Marcus's match, the Dunbars free about $1,090 a month. That clears the furniture plan in November, builds a $5,000 fund in December and pays off the card by the end of next year, even through twelve weeks of reduced pay and the start of childcare.

References

Amar, M., Ariely, D., Ayal, S., Cryder, C. E., & Rick, S. I. (2011). Winning the battle but losing the war: The psychology of debt management. Journal of Marketing Research, 48(SPL), S38-S50. https://doi.org/10.1509/jmkr.48.SPL.S38

Board of Governors of the Federal Reserve System. (2024). Economic well-being of U.S. households in 2023. https://www.federalreserve.gov/publications/files/2023-report-economic-well-being-us-households-202405.pdf

Madrian, B. C., & Shea, D. F. (2001). The power of suggestion: Inertia in 401(k) participation and savings behavior. The Quarterly Journal of Economics, 116(4), 1149-1187. https://doi.org/10.1162/003355301753265543