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I need 8 100 word reply’s for a forum in a finance class. It looks like a lot but its only 800 words total. Reply 1 I believe it is recommended to get your finances in order, pay off your credit card debt and have a significant emergency fund savings before diving into investment opportunities to make sure that you can comfortably live on what income you have after investing. Having this financial security will make sure when something happens, such as your car breaks down or you have a water leak, you have the funds to be able to fix the issue and not have to worry about selling investments, cashing in dividends or selling stock. Credit cards provide an easy way to spend money people do not have, this money, even in small amounts, add up and can get people in huge financial trouble. Then they are not able to pay their bills and often have to use their investments to pay what they owe. When people are not spending money on credit card debt they have more available for investing in their future and less chance that they will have to cash out their investments early to pay off debt. Some investments are charged penalties if withdrawn early and these penalties can be very large. Long term investments are a great way to put your money to use collecting interest over a long period of time. These investments needs to be monitored on a regular basis and not just forgot about (Kapoor, Dlabay, & Hughes, 2012). Getting your finances in order, knowing your financial goals and making sure you are able to pay your necessities are all very important before beginning your investment journey. Kapoor, J.R., Dlabay, L.R., & Hughes, R.J. (2012). Personal Finance (10th ed.). New York: McGraw-Hill Irwin. Reply 2 It is imperative that you pay off credit card debt or any other debt before attempting to invest your money. By having debts and trying to invest at the same time, you take the risk of needing the money you invested back. By doing this you could face penalties that will charge you even more money. It is important to know the money you have and how to spend it the right way. I personally live by a term, “Let your money make money.” It is important to have an emergency fund because you never know what can happen. This should be a fund that is for things that happen without any notice. It is recommended that an individual have anywhere from three to nine months saved. It will depend based on how you live, but to have at least the minimum. This will ensure that if anything drastic happens that you will not have to bury yourself in debt. Everyone has their own reasons for spending on credit, but it should be closely monitored. It is not good to make a large amount of purchases because before you know it you will not be able to pay it back off immediately and then interest will be stacked on top of it. It is important to be able to pay off your credit at the end of each month. If one can have an emergency fund and clear all of their debts then they will be capable of investing and not having to pull their money back out in emergency situations. Resources: Kapoor, J.R., Dlabay, L.R., & Hughes, R.J. (2012). Personal Finance (10th ed.). New York: McGraw-HillIrwin. ISBN: 9780073530697 Reply 3 The Garner’s have a monthly income of $4,520 in which they pay their bills and provide for their child. They were able to save a small amount each month to take a summer vacation. They seem to be doing pretty well until a big expense, like the air conditioner, came up. I think the financial status of the Garners needs to be reviewed. They make adequate income to support their family; they are just using it the wrong way. The expenses I believe can be reduced to allow the Garners more money each month are gifts and donations, recreation and entertainment, family clothing allowance, food and natural gas and electricity. Comparing their expenses with one child with my expenses with six children I find many of their expenditures to be too much. If Joe and Mary want to retire in about 30 years, they will need to make some lifestyle changes and properly invest some of their money. There are many different investment options they can choose but they will need to determine which would be right for them. To begin, Joe and Mary should start cutting costs where they can and building up their savings. They should save three to nine months of expenses for an emergency fund for any more unexpected things that may come up (Kapoor, Dlabay, & Hughes, 2012). The Garner’s will then need to determine how much risk they are willing to take in their investments. Since they are starting to plan so late, a higher risk option may provide a higher rate of return, but they may also lose their investment completely. Going very safe with something such as government bonds will have a very low risk but also have a very slow growth on the amount of money they return. Since the Garner’s are just beginning to think about their investment future, mutual funds could be a great choice. Both Joe and Mary have jobs which could be providing a retirement fund in which they can contribute to in which their employers would match their contributions (Kapoor, Dlabay, & Hughes, 2012). Another option that Garners have is to purchase stock in a reputable company that can potentially offer them a high rate of return. Purchasing a preferred stock with dividends would give them a source of income from the dividends they receive each year. Kapoor, J.R., Dlabay, L.R., & Hughes, R.J. (2012). Personal Finance (10th ed.). New York: McGraw-Hill Irwin. Reply 4 The financial situation for the Garners is poor before and after the air conditioner broke down. The fact that they only have 220 dollars to invest at the end of each month is not good. Granted a lot of people do not even have that, but between the two of them they should be more responsible with the amount of money they are throwing around. There are several things that the Garner family can cut back on to increase their surplus each month. The first thing I would cut back is the family clothing allowance. It is currently set to 230 dollars a month and I know clothes are expensive, but get what is necessary and do not splurge. I would recommend cutting that back by 100 dollars. Recreation and entertainment is set at 700 dollars a month. Since they only have one child they should cut back on recreation and entertainment. It is important to enjoy life, but at what point are you splurging? I would cut this down to 400 dollars a month. Sometimes it is nice to get people gifts, but this should not be a monthly cost. I would recommend cutting gifts down from 350 to 150. Between only these three recommendations, the Garners could increase their surplus by 630 dollars extra a month. With roughly thirty years left before retirement, I would recommend that the Garners check with their employers about if they offer a 401k or any other retirement plan. If not or even if they do, I would recommend choosing an IRA, but more importantly a Roth. I recommend a Roth IRA because they will not have to pay taxes in the interest that is earned over the next thirty years.References:Kapoor, J.R., Dlabay, L.R., & Hughes, R.J. (2012). Personal Finance (10th ed.). New York: McGraw-HillIrwin. ISBN: 9780073530697Reply 5 Week 2 Discussion 2 The legal principle of indemnity states that an insurer will not pay more than the actual cost of the cost of the loss (Redja, 2011). Another way to say this is that an insured individual “should not profit from a loss” (Redja, 2011). This principle is included in insurance contracts to keep insured companies and individuals from intentionally damaging their property for the sole purpose of financial gain. It also helps reduce the probability of insurance fraud on the part of the insured (Redja, 2011). An example would be if a car, which is worth $10,000, would receive $2,000 in damage. The insurance company could only pay up to $2,000. “The principle of insurable interest states that the insured must be in a position to lose financially if a covered loss occurs” (Redja, 2011). In other words, for an insurance company to pay any money the damaging of the insured item must result in some form of financial loss to the individual. An example would be if a house is damaged. It would result in a financial loss to an individual and would, therefore, satisfy the principle of insurable interest. This principle is slightly related to the principle of indemnity. If an item is damaged but it does not result in a loss, the insurance company could not pay the owner because they would profit.Rejda, G. E. (2011). Principles of risk management and insurance (11th ed.). Boston, MA: Pearson Prentice Hall.Reply 6 The principle of indemnity essentially means that the insurance will not pay more than the value of an actual occurred loss (Rejda, 2011). This “is one of the most important principles in insurance” (Rejda, 2011). There are two reasons behind the principle of indemnity. The first is that it prevents people from making a profit from a loss and second it attempts to prevent dishonesty of the people being insured (Rejda, 2011). It tries to prevent dishonesty because the possibility of a profit coming from a loss is removed and therefore is no longer tempting the people to lie to increase a profit. A personal example is when my grandmother totaled her car (she did not get hurt), the car insurance only covered the amount of the car at the time of the crash. The insurance did not pay the amount that my grandmother paid when she bought the car years before the accident. This policy prevents people from wrecking a car that they have had for many years in order to make a profit from the insurance company, by getting the full amount even though they could not resale the car for that value. There are some exceptions to the principle of indemnity; including valued policy, valued policy laws, replacement cost insurance, and life insurance (Rejda, 2011). Aleatory, unilateral, conditional, personal and adhesion are all distinct legal characteristics of insurance contracts (Rejda, 2011). A contract of adhesion means that the entire contract is accepted (Rejda, 2011). All of the terms and conditions of the contract are accepted and the insured cannot insist on changes to the contract (Rejda, 2011). This is an all or nothing situation. If the insured wants the contract they have to accept it all or none. It is significant to acknowledge the effects on contracts because of adhesion. Insurance contracts must be very explicit because any ambiguities go against the insurer (Rejda, 2011). Rejda, George E. (2011) Principles of Risk Management and Insurance 11th edition. Boston, MA. Pearson Education Inc. Reply 7 The time value of money is used to determine how much an investment is worth today. In terms of risk management, time value of money is used in hedging and investments. If a company is uncertain that an investment will not devalue due to an unforeseen circumstance, it can invest against it to minimize or cancel out any losses sustained. For the investment aspect, the time value of money is used to find the current value of future distributes from a bond or dividends from a stock (Rejda, 2011). Risk managers consider time value of money when investing or trying to find alternative ways to minimize potential losses. The net present value of any investment is the amount the investment is currently worth after it is adjusted for the discount (interest) rate. Once that number is calculated, the cost of the investment is subtracted. If the number is positive, the investment will yield a benefit; if the number is negative, the investment will cost more than it is worth (Rejda, 2011). With this information available, it is then the responsibility of the organization’s owner to decide the course of action.Rejda, G. E. (2011). Principles of risk management and insurance (11th ed.). Boston, MA: Pearson Prentice Hall.Reply 8 The “time value of money” is the value of cash based on the possibility of earning interest at different periods of time (Rejda, 2011). The video Understanding the Time Value of Money demonstrated a great example of the time value of money. In the example the person was able to make additional money by investing the million dollars in a bank with a 5% interest rate (Investopedia, 2016). This concept affects the decision making of risk management because with every decision that includes cash flow the time value of money has to be also considered. The $100 dollars in cash could really be a different value based on time and investment, which can affect the potential risks. The net present value “is the sum of the present values of the future net cash flows minus the cost of the project” (Rejda, 2011). This is one of the methods that accounts for the time value of money also (Rejda, 2011). This shows the owners of an organization potential profit of project being implemented. Rejda, George E. (2011) Principles of Risk Management and Insurance 11th edition. Boston, MA. Pearson Education Inc.Investopedia. (2016). Understanding the Time Value of Money. Retrieved from http://www.investopedia.com/video/play/understanding-time-value-of-money/
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