1.1: Introduction

Mark and Alice are both one semester shy of graduating from a state college. Mark is pursuing a degree in protective services and is considering becoming certified as a fire protection engineer, which would incur an additional $4,500 cost. With his degree in protective services, many other fields will be open to him. He could become a first responder, a game warden, or a correctional officer. Mark will have to specialize right away and wants a job in his state with some occupational safety and excellent job security.

Alice is pursuing a Bachelor of Science degree in medical technology and hopes to leverage this degree into a career as a laboratory technician. She has interviews at a nearby regional hospital and a local pharmaceutical firm. She hopes to get the hospital job because it pays a little better and offers additional on-site training. Both Mark and Alice will need further training to have the jobs they want, and they are already in debt for their educations.

Alice qualified for a Direct loan, and the federal government subsidizes her loan by paying the interest on it until six months after she graduates. She will owe about $40,000 of principal plus interest at a fixed annual rate of 6.8 percent. Alice plans to start working immediately after graduation and to take classes on the job or at night for as long as it takes to get the extra certification she needs. Unsubsidized, the additional training would cost about $3,500. She earns about $5,000 a year working weekends as a home health aide and could easily double that after she graduates. Alice also qualified for a Pell grant of around $5,000 each year when she was a full-time student, which covered her room in an off-campus student co-op housing unit. Mark also lives in the co-op, and that's how they met.

Mark would like to propose to Alice and looks forward to being a family man one day. He was awarded a service scholarship from his hometown and received a windfall from his grandmother's estate after she passed away during his sophomore year. He also borrowed $30,000 for five years at an interest rate of only 2.25 percent from his local bank through a family circle savings plan. He has been attending classes part-time year-round so he can work to earn money for college and living expenses. He earns approximately $19,000 per year working for a catering service. Mark is committed to repaying his relatives who have helped finance his education; he is also willing to help Alice pay off her Stafford loan after they get married.

Alice has $3,000 in U.S. Treasury Series EE savings bonds, which mature in two years. She has also managed to put aside $600 in a savings account earmarked for clothes and gifts. Mark has sunk all his savings into tuition and books, and his only other asset is his trusty old pickup, which has no liens and a trade-in value of $3,900. Having reliable transportation is a big concern for both Alice and Mark. After graduating, Alice hopes to find a job with accessible public transportation. Mark and Alice are both savvy with their finances and have successfully avoided getting into credit card debt. Each keeps only one major credit card and a debit card. They generally pay their statements in full each month.

Mark and Alice will have to find new housing after they graduate. They could look for another cooperative housing opportunity or rent an apartment. They could get married now instead of waiting, but Mark has a rent-free option to move in temporarily with his brother. Alice feels strongly about saving money to buy a home and wants to wait until her career is well-established before having a child. Alice is concerned about getting good job benefits, especially medical insurance and family leave. Although still young, Mark is worried about being able to retire, the sooner the better, but he has no idea how that would be possible. He thinks he would enjoy running his own catering firm as a retirement business someday.

Alice's starting salary as a lab technician will be approximately $30,000, and as a fire protection engineer, Mark's starting salary will be around $38,000. Both have the potential to double their salaries after fifteen years on the job, but they are worried about the economy. Their graduations are coinciding with a downturn. Aside from Alice's savings bonds, she and Mark are not in the investment market. When he can, Mark wants to invest in a diversified portfolio of money market funds that include corporate stocks and municipal bonds.

Nevertheless, the state of the economy affects their situation. Money is tight, loans are hard to obtain, jobs are scarce and highly competitive, purchasing power and interest rates are rising, and pension plans and retirement funds risk losing value. It's uncertain how long it will be before the trend reverses, so for the short term, they need to play it safe. What if they can't land the jobs they're preparing for?

Alice and Mark certainly have a lot of decisions to make, and some of those decisions have high-stakes consequences for their lives. In making those decisions, they will have to answer some difficult questions:

1. What individual or personal factors will affect Alice's and Mark's financial thinking and decision-making?
2. What are Mark's best options for job specializations in protective services? What are Alice's best options for job placement in the field of medical technology?
3. When should Mark and Alice invest in the additional job training each will need, and how can they finance that training?
4. How will Alice pay off her college loan, and what will be the cost? How soon can she pay off her debt?
5. How will Mark repay his family's investment in his education?
6. What are Alice's short-term and long-term goals? What are Mark's? If they marry, how well will their goals mesh or need to adjust?
7. What should they do about medical insurance and retirement needs?
8. What should they do about saving and investing?
9. What should they do about getting married and starting a family?
10. What should they do about buying a home and a car?
11. What is Mark's present and projected income from all sources? What is Alice's?
12. What is the tax liability on their present incomes as singles? What would their tax liability be on their future incomes if they filed jointly as a married couple?
13. What budget categories should Alice and Mark create for expenses and expenditures over time?
14. How could Alice and Mark adjust their budgets to meet their short-term and long-term goals?
15. What five-year financial plan could Alice and Mark develop?
16. How will larger economic factors affect the decisions Mark and Alice make, and the outcomes of those decisions?

You will make financial decisions throughout your life. Sometimes you can see those decisions coming and plan deliberately; sometimes, however, things happen unexpectedly, and you are faced with a more sudden decision. Personal financial planning is about making deliberate decisions that allow you to get closer to your goals, or sudden decisions that allow you to stay on track if things take an unexpected turn.

Personal financial planning is a lifelong process. Your time horizon will arc until the very end of your life, and your circumstances will change in predictable and unpredictable ways. A financial plan has to be re-evaluated, adjusted, and re-adjusted. It must be flexible enough to respond to unanticipated needs, robust enough to advance toward goals, and prescient enough to protect against unforeseen risks.

One of the most critical resources in the planning process is information. We live in a world awash in information, and there is no shortage of advice. To utilize this information effectively, you must understand what it is telling you, why it matters, where it originates, and how to apply it in the planning process. You need to be able to put that information in context before you can use it wisely. That context encompasses factors specific to your situation that influence your financial thinking, as well as broader economic factors that impact your financial decision-making.