Understanding Financial Short-Term, Medium Term, and Long-Term Goals and How to Achieve Them

Table of contents

Short-Term Goals

Purchase Life insurance policy Look for a company offering a considerable or lower premium since it is a fact that Loss of life will certainly happen. Those that are prone to higher risk such as cancer and aids are in need of life insurance because the objective of life insurance is to provide the much-needed help to your dependent in case of death. (Keown: 1998)

Purchase automatic car Purchasing a new car should be deferred until the Jones’ have learned to start saving. Initial payment needs a large amount of money. This will surely affect their monthly finances added with the amortization.
The suggestion of Amy’s mother to buy the old car of Joneses is advantageous to the couple for they may save 500 which could augment their financial needs.
Upgrade car insurance Upgrading of car insurance could be considered provided premium would not be far from the one he is paying right now.

Medium-Terms Goals

Buy a bigger house As far as this case study is concern the Jones’ at this point in time should not purchase a bigger house though they need it because there income does not warrant buying a bigger one unless they have some extra income to augment the fund needed for this purpose.
Invest in stock market Adam could start looking and learning the process in the stock market. Although friends could give him tips, it is better if he will equip himself with the new venture. He can read Finance Management Books, newspapers and listen to analysts on the television from time to time.
To save at least 2,000. 00/year This amount can be attained through maximizing earning potential such as the plan for investment in the stock market while minimizing expense.

Long-Terms Goals

To finance college education of their children
To afford travelling to Asia and other parts of the world
Enjoy retirement with a standard living they have now
Leave a substantial assets to their children

How to Achieve

Everything should start with savings. Without it, is impossible for the Jones’ to meet their ultimate goal of enjoying life twenty years from now. Amy could possibly look for a job even for a part time basis, to help his husband with their monthly expenses. Once the kids get older, she could find a more stable job and start earning as much as his husband can.

Eventually, if they continuously practice proper spending, then they will just come to realize that after, they will bear the fruit of their labor.

Personal financial statements, including personal cash flow statement and a personal balance sheet. Specific recommendations on what to do in order to achieve identified goals.


Based on the financial statements presented above, it is advised for the Jones’ to minimize or reduce expenses on rental, travelling and entertainment. It is better if they could find a house cheaper than they have now without sacrificing their comfort.

Unnecessary travels should be avoided and other latest gadgets that comes in the market for them to be able to cope with their monthly deficits and make room for savings. Response on the idea of Adam’s delaying credit cards payments to reduce his cash outflows. Before the pros and cons on the idea of Adam to delay payments of his credit cards let us first pay a glimpse on the salient features of credit cards.

=The Interest Rates – The major issue that decides the cost of line of open credit is the Annual Percentage Rate (APR) which is the factual and simple interest rate paid over the life of the loan.

It takes all costs into account , including interest on the balance of the , the cost of credit reports, the cost of all possible fees, and so forth, the importance of the APR (Keown: 1998) According to Keown (1998) there are so many reasons why we should use or will not use our credit cards. Although in our society today without a credit card is hard to facilitate simple task such as paying your monthly bills. Below according to Keown (1998) are advantages of credit cards, such as the following

Expediency or ease of shopping
Crisis use
Permits consumption
Permits for consolidation of Bills
Can be used in expectation of price increases.
As a basis of Interest –Free Credit
For making plane or hotel reservations
For use as identification card. 9. as a source of remuneration


On the following: (1) Plans for buying a new car,

Buying new car is considerable but has to make sure to sell the old one since it is hardly being used by Adam in his work and Amy could not use the same due to her inability to drive a manual car. (2) The offer from Amy’s mother and Adam’s boss, and
The offer derive from her mother is a positive proposition while the proposal of Adam’s boss should be declined as it will add more on their liabilities hence they could not cope with their financial debt
To examine the associated costs of upgrading the coverage to their current car insurance policy and resulting to negative of switching to more inexpensive auto insurance provide. The associated cost on upgrading the coverage of their car insurance according to Keown (1998) were as follows:

The kind of automobile The sportier and additional intensity your car is the more your indemnity will price. Actually in buying a car the cost of insurance should be based on the buying decision.
The use of automobile The lesser you utilize your car the less you will have to pay in insurance premium
The driver’s personal characteristics – Youthful and married person particularly those men pay for the most of their insurance, since they have a gauge enhanced chance of having an accident. So, your age, sex, and marital standing all go into determining as to how much you will into the insurance.
The drivers driving record If you have obtained a traffic accident you might likely pay extra for your insurance. As to how much you premium go up relies on the nature of your infringement. Once you received a citation that says If you received a driving ‘under the influence of alcohol citation’, you will hope to increase in your premiums.
Where you live In general, since higher occurrence of accident and theft, insurance added extra expense for those who live in urban areas rather than it is rural drivers.
Discounts that you are qualify for A wider diversity of discounts is obtainable for cars that have positive safety character for individual or have category that commonly identified with secure drivers.

According to Keown (1998) the foolowing steps are to be taken when filing a claim:

Get a duplicate of police report and make sure it is correct
Call your insurance agent as soon as possible
Assist your insurer, keep in mind if there is a lawsuit, you insurer will defend you.
Keep documentation of all your expenses related with the accident
Bring the case o f the severe accident meet with the lawyer so that he know and can teach you how to protect them.

Comments on: Buying a New House Comparing Option to Rent and Buy There are advantages of renting according to Keown(1998) such as the following:

A highly mobile, can move without incurring real estate selling cost
It does not require down payment
It Always involved a lower monthly cash flow – you only pay rent, while a home owner pays a mortgage, premium, taxes, insurance and up kept.
Let alone the risk of falling housing prices
Many times extensive amenities like swimming pool and health clubs are provided
No home repair and preservation tasks
No earths keeping responsibilities
No property taxes Advantages of buying (Keown: 1998)
Let you build equity in the end as you pay off your mortgages
likelihood of home appreciation
let a deal of personal liberty to remodel, landscape and decorate and suit your tang.
noteworthy tax advantages including deduction of interest and property taxes
No chance of rent rising over time
You home is a potential source of cash in the form of home equity loan Provide them suggestions on what you think they should do in terms of their housing issues based on their situation.
Concerning the Jones’s lifestyle it suggested that they should rent a house for the moment for their financial status dictates that they cannot afford to buy a new house.

Advice on different types of mortgage policies

Sources of Mortgages

Government back mortgages – simply a loan from a bank or savings or loan institution that is secured by a property being purchased.
Fixed rate mortgage loan – a loan is one on which the monthly payment doesn’t change regardless of what happen to market interest rate.
Adjustable rate mortgage – the rate fluctuates up and down according to the level of current market interest rates within limits at the specific intervals

Other Mortgage Loan Option

The balloon payment mortgage loan – one makes relatively small monthly payments for several years after which the loan becomes due and you must pay it off in one large balloon payment. Exactly how large the initial payment it varies.
Graduated payment mortgages – the payment are set in advance in such a way that they steadily rise for a specific period of time c. Growing equity mortgages – designed to let the home buyer pay off the mortgage early which is done by paying a little extra each year.
Shared appreciation mortgages – The borrower receives a below market interest rate in return for which the lender receives a portion of the future appreciation in the value of the home.

The Pros and Cons of various types of financial institutions where they could maintain there:

Commercial Banks – They offer widest variety of financial services including checking and saving accounts, credit cards, safety deposit boxes financial consulting and all types of lending services.
Savings and Loan Association- Originally established to provide mortgage loans to their depositor. The depositor’s money was pooled and then lent to other depositors to use in paying for homes. In the mutual S;L, the depositors are the owners of the S;L. As such they received dividends rather than interest on their savings. They operate on a smaller scale than do commercial banks.
Savings Bank – depositor owned, basically making them mutual savings bank. They pay dividend rather than interest to the depositors
Credit Union – a not for profit cooperative made up with members of some type of common n value, Tax exempts a smaller scale. They pay depositor more than depositor should otherwise earned as commercial bank.
Future Fund – Investor’s folder money giving it to professional investment manager hired by the investment company that operates the future fund.
Stock Brokerage Firm – offered financial counselling credit cards and their own money market.
To what bank should they move their accounts that can assist them in making investment and money management decisions. (Online Resources). Aside from HSBC, an international bank, they could try with JP Morgan Chase, a world class bank, stable and liquid. Its investments can be closely monitored from newspapers and TVs.
Show evidence how you come up with the decisions. It was based on observing current market trends

Comments on their habits with regard to identity theft and make recommendations to the Jones for appropriate changes that will reduce their risk of exposure to identify theft. The Jones’ should understand that technology can surely make a huge trouble today. Their children must be trained to what extent of technology they should use. Closely monitor their daily activities.

 Comments on Adam need for life insurance and their plan regarding the use of life insurance as a means or maintaining liquidity. Give him advice on where to start and what would be the estimated cost. Give him a specific example based on a real life quote that you can find from a few insurance websites such as;


The Need for Insurance Rises from Axiom: Protect yourself against major catastrophe ‘the case for insurance’ in the case of life insurance it is not you who is basing protected but your family.

The purpose of life insurance is to cushion the financial blow that when hit your dependents when you die. The key concept for here is planning and control. If you plan carefully enough, you can control your finances even after your death. Comments on Adams level of diversification and views on bonds, as well as factors that may influence his asset allocation. Provide any other suggestions on their investments.


Bonds-a long term contract under which a borrower agrees to make payments of interest and principal on specific dates to the holders of the bond.

The four types of bonds are: treasury, corporate, municipal and foreign.

Diversification – works by allowing the extreme good and bad return to cancel each other out resulting in a reduction of the total variability or risk without affecting the expected return. As you diversify your investment, the variability risk of the combined holding of your investments which is called portfolio should decline.

Why Consider Bonds

Bond reduce risk through diversification
Bond produced steady current income
Bonds can be a safe investment it held to maturity.

Comment on Adam’s Retire Plan

Apply time value of money concept (assuming 12% annual return).

• Plan now retire later ‘nothing happens without a plan even for a simple plan’
• ‘Set goals estimate how much you will need to meet your goal
• Estimate your income available at retirement
• Calculate the inflation adjusted shortfall’
• Calculate the fund needed at retirement to cover you short fall
• Determine how much you must save annually between now and the retirement
• Put the plan in play and save
• Time lines are used to help. Provide examples to show the importance of starting to save early.


From their monthly income stated above, minimize purchasing unnecessary equipments/gadgets that are too costly. Vacations should be carefully planned to avoid too much spending. Explain how time value of money affects the amount of they save and number of years they need to save. The best way to explain the time value of money is through this mathematical computation of ‘Time Value of Money’ (Brigham et al: 1999) FVn = PV(i+i) n FVn = 2,000(1+12%) 20 = 2000x 9. 646 = 19,292 (Future Value)

Critically explain the importance of estate planning and how it may affect their financial plans A.

Planning for what happens to your accumulated wealth in your dependents until you die

Four Steps of State Planning

Determine what your estate is worth – estate start with determining the value of your asset the easiest way to figure out what you got and what is worth by looking at your personal balance sheet.
Choose your heirs, determine their needs, and decide what they receive – Want you know just what you got you can then go about figuring out who’s going to get it when you go. Most of us have complicated estate and we thus need to put a great deal of thought into dividing them into up among heirs.
Determine the cash needs of the estate – what you got what you know and who is going to get it. Your estate planning is not yet done. All legal fees, outstanding debts and estate and inheritance taxes must be paid.
Select and implement you estate planning techniques – commonly used techniques include a will and durable power of attorney trust, life insurance and gifts.


The Jone’s should come up with a good estate plan to provide a clear guidance to the heirs if and when the couple dies particularly as to who shall going to get it. See below estate planning worksheet:

Your will, durable power of attorney and living will
The name of your attorney
Your letter of last instructions
Your social Security Number
Your Safety deposit box and the key to it
A record what is in your safety deposit box
Your birth certificate
Your marriage certificat3e
Any military discharge paper
Insurance policies
Deed and title to properties
Your stocks bonds and other securities
Any business agreements including debts
All checking, saving, and brokerage number.
The name of your accountant
Your last year income tax return
The name of past employers along with any pension and benefits.

List of Reference

Spiro, H. T. (1977).
Finance for the Non-Financial Manager-2nd Edition By John Wiley & Sons Canada Brigham, E. F. (1999).
Finance Financial Management, 9th ed. Orlando, Florida, The Dryden Press. Seigel et al (2001).
Corporate Controllers handbook of Financial Management, 2nd ed. Prentice hall Keown, A. J. (1998).
Personal Finance turning Money Into Wealth. New Jersey. Prentice Hall San Gabriel, N. C. (1979).
Business Finance, 2nd ed. Phil. Goodwill Trading and Company.

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