BUSN380 Week 5 Threaded Discussion â€“ Insurance Obligations & Subsistence Spending
BUSN380 Week 5 Threaded Discussion â€“ Insurance Obligations & Subsistence Spending
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BUSN380 Week 5 Threaded Discussion – Insurance Obligations & Subsistence Spending Insurance Obligations What are the financial merits of rent/lease vs. outright purchase decisions? When do you think it is appropriate in life to choose to rent, and when to purchase? Does the housing crisis of the last few years make you think twice about purchasing a home? While browsing the web I came upon a very cynical blog by a retired member of the Air Force about the risks of purchasing a home as a military buyer. The piece is pretty pessimistic and very cynical, but factual and worth heeding. Lt Col Ostrom claims: “Unless you are going to keep a house for decades, buying a home for a few years is like betting the farm at the Kentucky Derby. If you buy a home, you better have a backup plan in case it costs you a bundle to get out of the house when the time comes. No one knows what your home market will be when it comes time to sell. Even setting aside the housing slump, that’s the way it’s always been.” “There is a misconception that real estate always goes up. See how well that goes over with any member currently trying to sell a home worth less than their mortgage debt. Home markets vary based on cities and regions of the country; I’ve talked to folks $100,000 underwater. Buyers all count on making a profit; no one figures to lose on the deal. Profit 100percen of the time — how realistic is that? It isn’t. “ “To help paint a picture of the risk you assume when you buy a home, imagine you are within three years of retirement and you’ll need all your TSP investment value to generate additional retirement income. Would you invest 100percent of your retirement account in stocks? No, of course not. What makes buying a house on a threeyear assignment much different? “ http://www.moaa.org/usergroup_emember/usergroup_emember_financial/usergroup_emember_f inancial_homebuying.htm As we all likely know, there are many elements to the home buying decision. For example, local property taxes play a huge role in assessing the home purchase decision. BUSN380 Week 5 Threaded Discussion – Insurance Obligations & Subsistence Spending What about closing costs? What do we come up with for the value of closing costs (excluding the down payment) by consulting local real estate organizations or by way of online research? Closing costs may include points or other origination fees, any prepaid interest, prorated property taxes (if any), etc. For most loans, the buyer pays the closing costs at the close of escrow. It is comforting to know that homebuyers do not have to be at the mercy of the brokers and the lenders. Government certainly plays its part in educating and assisting people who might otherwise balk at the idea of owning a home for fear of the daunting costs. In my home state of New York, many people are put off from buying a home because it is so hard to save enough money for the down payment and closing costs. As part of Mayor Bloomberg's "New Housing Marketplace Plan," the New York City Department of Housing Preservation and Development (HPD) created the Home First Down Payment Assistance program. It provides qualified homebuyers with up to $25,000 toward the down payment or closing costs on a 14 family home, a condominium, or a cooperative in one of the five boroughs of New York City. To qualify for the loan, a prospective buyer of a one to four family home, a condominium, or a coop in one of the five boroughs of New York City, must meet several criteria. These include firsttime buying status, attendance at a homebuyer education course, adequate savings to contribute to the down payment or closing costs, incomeeligibility, and 10year occupancy requirement. Closing costs are part of purchasing a home, just as assessments for local property taxes and commissions for real estate sales people. And, closing costs are not always equal among lenders. Just as service offerings differ in most product markets, mortgages and mortgage lending services differ from company to company. The worksheet in the Personal Financial Planner at the end of our book can help you research a mortgage company and a mortgage type. Let's switch gears to automobile purchasing vs leasing. What do you think is the best approach? Remember, vehicles depreciate rapidly, so if you finance the full purchase price, you often find yourself upside down on the loan immediately. Being upside down simply means that you owe more than the car is worth. Remember, there are taxes and other fees that go into a new car purchase, and they are typically rolled into the loan if you don’t put anything down. That means as soon as you drive it off the lot, you owe more money to the bank or dealership than the vehicle is actually worth. This is a very bad idea if you intend on selling or trading the car in before the loan is paid off. If after three years you need to get a new vehicle and you owe $10,000 while the car is only worth $8,000, you will have to either pay $2,000 out of your pocket, or finance that into your new loan. It may feel good to walk out of the dealership with a brand new car without having to fork over a dime up front, but it will cost you. BUSN380 Week 5 Threaded Discussion – Insurance Obligations & Subsistence Spending http://financialplan.about.com/od/savingmoney/a/newcarmistakes.htm Talking about lease vs. buy decisions for automobiles, Suze Orman provides a wakeup call to all the fancycar wannabes with an okay credit rating who think leasing is the way to go! The financial guru believes it to be a big waste of money to lease a car, and unabashedly refers to her own misguided decision to lease a 1987 730i BMW she couldn’t afford to buy, just to impress a love interest. I do not intend to disparage people who make the decision to lease, and David Destefano makes a clear case for the benefits of really thinking things out to avoid wasting money on a lease. However, Ms Orman describes leasing as a “drug for statusconscious people who need the rush of driving a ‘nicer’ car than they can really afford.” She warns that consumers need to understand the true financial cost and the risks they take when deciding to lease a car, because the autofinancers are well versed in convincing you that you can have your cake and eat it too. “Can't afford to buy a BMW or Lexus? No problem, just lease it!” http://biz.yahoo.com/pfg/e16buylease/art021.html You can also give yourself a math quiz. The car experts at www.Edmunds.com have plenty of information to help you weigh whether leasing makes sense, including a nifty calculator that will estimate the cost of buying vs. leasing. The Stupidest Financial Mistake I Ever Made And just so you know, whenever I am asked what is the most stupid financial move I ever made in my entire life, I don't have to think very long. It was when I leased my 1987 730i BMW. I leased because I wanted to impress my love interest at the time with this fancyschmancy car that I couldn't afford to buy. And the fact that I couldn't afford it was about the last thing I wanted anyone, let alone my partner, to know. It was stupid financially and emotionally. I was trying to impress people rather than do what was right for me. I have learned plenty since then. Including how important it is to be honest with yourself so you don't end up in a financial mess. Owning up to the truth of your personal situation can give you a great new lease on life which is the only kind of lease I would ever recommend without reservation. http://biz.yahoo.com/pfg/e16buylease/art021.html Subsistence Spending BUSN380 Week 5 Threaded Discussion – Insurance Obligations & Subsistence Spending Suppose you found yourself in a position where your monthly level of income was cut in half. Assume this misfortune will persist for the long term. Discuss the effect such a salary reduction would have on your current lifestyle. What conclusions can you draw? The privatelabel theory is when the economy hits a valley and discretionary income for consumer spending decreases, consumers who normally buy namebrand foods switch to generic brands, and those who normally buy generic switch to the dollar store brands. In that sense, my business has a tendency toward having a negative beta. We all have likely gotten into the habit of taking a closer look at our purchases in the last few years. Using the consumer purchase matrix on page 252 of our text, analyze a purchase you plan to make. What factors affect the attributes and weights you chose for your purchase analysis? Funny this should come up right now. My old Bose in ear headphones finally died a couple of weeks ago and my brother promised to replace it for my birthday. The check finally arrived…only 3 months after the big day, with the condition that I use the money to get myself “something good” and NOT to pay bills! I am a huge music buff and have gotten headphones in the past by redeeming my Visa Rewards and settling for the substandard quality that “free” brings. This time I am very excited to use a consumer buying matrix to work out the best possible result, and I shall be making this purchase instore at J&R Music World. Now I consider myself an expert in headphones so this is serious, ok? The product attributes weights I consider are: Comfort .9 Sound Quality .8 Ear Tenacity .7 Price .1 Reviews .6 MY BUYING MATRIX Item: Headphones Information Sources/ Comments Amazon .com; J&R.com, bizrate.com Note: Price does not matter. Rating of 1 indicates most expensive 10, least expensive BUSN380 Week 5 Threaded Discussion – Insurance Obligations & Subsistence Spending Style/Price: BOSE BUDS $100 Attribute: COMFORT Weight: .9 Rating: (110) 7 Weighted Score: .9x7 = 6.3 Attribute: SOUND QUALITY Weight: .8 Rating: (110) 8 Weighted Score: .9x7 =6.3 Attribute: EAR TENACITY Weight: .7 Rating: (110) 2 Weighted Score: .7x2 =1.4 Attribute: PRICE Weight: .1 Rating: (110) 3 Weighted Score: .1x3 = .3 Attribute: REVIEWS Weight: .6 Rating: (110) 6 Weighted Score: .6x6 = 3.6 Style/Price: SENNHEISER OVERTHEEAR $89.95 Attribute: COMFORT Weight: .9 Rating: (110) 5 Weighted Score: .9x5 = 4.5 Attribute: SOUND QUALITY Weight: .8 Rating: (110) 5 Weighted Score: .8x5 =4.0 Attribute: EAR TENACITY BUSN380 Week 5 Threaded Discussion – Insurance Obligations & Subsistence Spending Weight: .7 Rating: (110) 9 Weighted Score: .7x9 = 6.3 Attribute: PRICE Weight: .1 Rating: (110) 6 Weighted Score: .1x6 = .6 Attribute: REVIEWS Weight: .6 Rating: (110) 5 Weighted Score: .6x5 = 3.0 Style/Price: AUDIOTECHNICA CLIPS $129 Attribute: COMFORT Weight: .9 Rating: (110) 5 Weighted Score: .9x5= 4.5 Attribute: SOUND QUALITY Weight: .8 Rating: (110) 8 Weighted Score: .8x8 = 6.4 Attribute: EAR TENACITY Weight: .7 Rating: (110) 9 Weighted Score: .7x9 = 6.3 Attribute: PRICE Weight: .1 Rating: (110) 1 Weighted Score: .1x2 = .2 Attribute: REVIEWS Weight: .6 Rating: (110) 6 BUSN380 Week 5 Threaded Discussion – Insurance Obligations & Subsistence Spending Weighted Score: .6x6 = 3.6 TOTALS: WEIGHTS = 3.1 BOSE BUDS ( .9x7) + (.9x7) + (.7x2) (.1x3) (.6x6) = 6.3 + 6.3 + 1.4 + 0.3 + 3.6 = 17.9 SENNHEISER OVERTHEEAR (. 9x5) + (.8x5) + (.7x9) + (.1x6) + (.6x5) = 4.5 + 4.0 + 6.3 + 0.6 + 3.0 = 18.4 AUDIOTECHNICA CLIPS (9x5) + (.8x8) + (.7x9) + (.1x2) + (.6x6) = 4.5 + 6.4 + 6.3 + 0 .2 + 3.6 = 21 Well… looks like I might be in the market for some AudioTechnica Clips this spring! I want to underscore the importance of a concept discussed early on in our course which is related to all of these consumer purchasing/finance decisions: opportunity cost. It is vital we as business students and business people apply opportunity cost to our financial analysis. With so much equity lost in the real estate market due to the Great Recession, do you think there is now an opportunity cost of owning a home that was not as obvious before? Back when real estate “always went up” the rentversusbuy decision was not always about finances or investment. People would opt to rent instead of own because they valued mobility, didn't want the liability and responsibility of home ownership and maintenance, or a variety of other reasons. Until the market crashed, renters did not consider losing their down payment and more if they had to sell unexpectedly. Much to the chagrin of realtors, potential buyers now know crashes are possible and are weighing their options carefully. Would I rather travel more or pay property taxes?”. Yet for others, the tradeoff is a virtual nobrainer, between paying rent every month toward something you will never own, and snapping up the equity and financial perks of mortgage interest and tax deductions. For some people, the opportunity cost of not owning a house is being able to sleep at night BUSN380 Week 5 Threaded Discussion – Insurance Obligations & Subsistence Spending instead of financial uncertainty of meeting a mortgage and recurring expenses. But as Lina demonstrates, the market is changing in many places and there are great deals on the market. These days as supply outstrips demand, choosing to rent might mean foregoing easily achievable benefits of home ownership. Some big opportunity cost questions come to mind: Would I rather sacrifice the life style flexibility, for the freedom to renovate or decorate as I please? Since, the bank really owns most of your property unless you buy outright the issue is really one of the opportunity cost of loan ownership, isn’t it? You pay too much for your house, and in exchange, you get a place to live and unlimited spending money refinancing at a lower rate when interest rates drop! What about the selfesteem of being a responsible homeowner, keeping it energyefficient, keeping it clean? You get to do what you want, when you want, on your own terms, and you directly benefit from it. http://www.irvinehousingblog.com/blog/comments/fallingpricesmakestherentversusbuydecision difficult/ Trust me you do not need a lawyer for a simple Chapter 7. I have done this before and stopped short of the actual filing. I need to finish school first since I need to apply for student loans for the coming final year. When I called the consultation lawyer, she had to hand it to me because I was so prepared . She suggested I go ahead and do it myself because there was nothing more she could add to what I’d already accomplished. For simple Chapter 7 cases where you do not own a home, or any other nonexempt property like a car you don’t mind losing, the petition and process can be handled without an attorney. The steps are as follows: 1. PreBankruptcy Counseling Before filing the petition, you must attend a credit counseling session. This is where you determine if you can afford to avoid bankruptcy by working out a repayment plan. 2. PreBankruptcy Planning Before completing and filing the petition, you should take some steps to try to protect as many assets as possible from liquidation. This entails accounting for all personal property, and matching it up against available exemptions. 3. Complete the Bankruptcy Petition and Schedules The petition can be a little complicated, but if you take your time it shouldn't be too difficult. The petition itself is straightforward, but there are 17 complex, additional petitions that can be time consuming. BUSN380 Week 5 Threaded Discussion – Insurance Obligations & Subsistence Spending 4. Meeting of Creditors Once you have filed the petition with the court, you will be scheduled a 341 meeting, where you will appear before a trustee (and sometimes a judge) along with any creditors that want to dispute any details. In this meeting, the trustee will question you about your personal and financial information and the accuracy of your bankruptcy paperwork. Creditors may use this time to try to get their claims removed from the bankruptcy so that they can collect from you. 5. Bankruptcy Discharge and Post Bankruptcy Counseling It takes between 6090 days for a bankruptcy case to be completed, at which point your unsecured debts are discharged. Before the discharge actually occurs, you will need to attend one more counseling session. This is an attempt by the court to make sure debtors get educated so as to avoid the same situation in the future. http://www.bankruptcylawfirms.com/resources/bankruptcy/filingforbankruptcy/withoutalawyer.htm
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