Financial Case Study Analysis (Personal Finance Case #9) Bianka Lapinskas, Alexa Martinez, Yannick McIntyre, and Ally Wilbur

Brief Overview

  • Dale and Sally Gab, 48 and 47, are having a difficult year financially
  • Dale was diagnosed with cancer and spent most of last year in treatment
  • The Gab's income decreased by almost $10,000
  • The Gabs were responsible for about $15,000 in medical bills that were not covered by insurance
  • The result: a $25,000 hit to the family's cash flow

Strengths and Weaknesses

  • Weakness: Current health insurance
  • Weakness: Payment method of the medical bills
  • Strength: Credit card management
  • Strength: Saving for retirement
  • Weakness: Neither spouse has disability coverage
  • Weakness: Poor financial planning
  • Weakness: Have not prepared wills or any other estate planning documents


  • The couple has been talking seriously about retirement
  • The couple wishes to buy a new car

Cash Flow

  • Net worth: $298,400
  • Debts: $114,600

Emotional Issues

  • Emotional time for the family considering Dale's cancer
  • Emotional ties to their 8-year old son Chad's college fund

Financial Goals and Recommended Action Steps

  • Short-term goal: Overcome Dale's cancer and the financial setbacks that come with it by avoiding any more unnecessary medical bills
  • Recommended action step: Immediately switch over from their current health insurance to an HMO through Dale's employer
  • Medium-term goal: Build back Chad's college savings
  • Recommended action steps: 1. Cut back on any unnecessary spending, 2. Sacrifice the idea of getting a new car and switch over to a cash-back credit card instead of their GM credit card
  • Long-term goal: Save for retirement
  • Recommended action step: Each contribute part of their salary to tax-deferred employer retirement savings plans and Roth IRAs

Methods to Improve Finances

  • Change health insurance
  • Put all savings into a 3-6 month buffer
  • Pay off car loan
  • Increase life and disability insurance

Wise Tax Strategies

  • The Gabs (both Dale and Sally) earned $84,000 as gross income last year.
  • Recommended tax status: married, filing separate returns
  • Most deductions will be earned back if medical bills ($15,000) are added to Dale's tax returns.
  • Deductions earned = $12,585
  • Dale's taxable income (AGI - deductions) = $19,615
  • Sally can apply Chad as dependent (becomes tax-shelter/exemption)
  • Dale falls in 15% tax bracket
  • Sally falls in 25% tax bracket

Legal Concerns

  • Durable Power of Attorney: Sally will be appointed
  • Trusts for Sally and Chad: 1. Credit-Shelter Trust (leaves everything to Sally and no taxes will be mandatory), 2. Testamentary Trust (1/3 of estate for Chad; effective only when Dale dies), 3. Pourover will (adds anything that was not added to the will to the trust when Dale dies)
  • Letter of Last Instruction: 1. Recommended for both Dale and Sally, 2. Includes funeral arrangements, locations of bank accounts, safe-deposit box information & location of legal documents (social security, insurance policies, car registration, etc.)

Estate Planning

  • If Dale passes away without a will: Dale's entire estate becomes Sally's property (following guidelines of 1990 Uniform Probate Code)
  • If Dale passes away with a will: 1. Recommended that 2/3 of estate go to Sally and remaining 1/3 go to Chad (see "Legal Concerns"), 2. Sally will be able to pay off any debts and leave money to the side for Chad's education, 3. Once Chad is of legal age (i.e. 18 years old), he can inherit his share of the estate
  • If both Dale and Sally pass away with a will: Couple should appoint guardian for Chad to watch over him and manage the estate until he is of age to inherit and manage on his own

Investment Alternatives and Risk Assessment and Perspectives

  • Employer sponsored retirement account
  • Stock or equity financing
  • Corporate and government bonds, mutual funds, real estate, commodities, derivatives, precious metals and gemstones, coins and stamps, and antiques and collectibles
  • Consider its liquidity or its ability to become money
  • Gabs = mutual funds
  • Reduced risk from investment because one less is offset by gain
  • Assess risks
  • Risks: global investment risks, market risks, business failure risks, interest rate risks, and inflation risks
  • Determine interest rate risk: use the formula of dollar amount of annual interest= face value x interest rate
  • The Gabs are recommended to invest in refinement plan

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