T.G.B.A.

Financial Services

Personal Financial Plan

Prepared for
Mario and Meredith Sanchez
December 31, 2013

Table of Contents
Page 3 Engagement Letter
Page 4 Statement of Financial Position
Page 5 Statement of Income and Expenses
Page 6 7.. Financial Ratio Analysis
Page 8. Current Spending Analysis
Page 9 12 Questions, Concerns, and Recommendations

Our Team
Ben Gartmann, CFP
Tri Tran, CFP
Gurminder Singh, CFP, CPA
Armando Hernandez, CFP

Engagement Letter
December 31, 2013

Mario and Meredith Sanchez

9308 Forest Ln
Dallas, TX 75243
Dear Mr. and Ms. Sanchez:
Thank you for the opportunity to meet with you. T.G.B.A. Financial Services welcomes the opportunity to
work with you. This engagement letter outlines the specific terms of the financial planning engagement
between:
T.G.B.A. Financial Services, Mario Sanchez and Meredith Sanchez
As we discussed during our introductory meeting, the primary objective of our engagement will be to
analyze your personal financial situation and develop a comprehensive financial plan. The scope and
nature of the services we will provide are as follows:

Reviewing and prioritizing your goals, needs, and objectives.

Developing a summary of your current financial situation, including a year-end net worth
statement and cash flow summary.
Presenting a written financial plan that will be reviewed in detail with you.
Developing an action plan to implement the agreed upon recommendations.
Assisting you with the implementation of the financial plan.
Determining necessity to revise your financial plan.

The nature of our compensation for our services is based on a flat fee of $3,000 which is due and payable
upon the return of this Engagement Letter. We are ready to begin work immediately. If these terms are
acceptable to you, please sign in the space(s) below and return this letter along with the fee. Please note,
you are free at any time to end this agreement and we will bill you only for the work that has been
completed up to that point.
We look forward to working with you and helping you reach your financial goals.
Sincerely,

Armando Hernandez CFP Professional

Client Signature:

Client Signature:

I accept the terms of this engagement letter.

I accept the terms of this engagement letter.

_________________________________

________________________________

Mario Sanchez

Meredith Sanchez

Statement of Financial Position

Mario and Meredith Sanchez
Balance Sheet as of 12/31/2013
Assets
Current Assets
JT
JT
JT
Total Current Assets
Investment Assets
H
W
H

Liabilities and Net Worth

Current Liabilities

Checking Account
Savings Account
Bank CD

$2,000
$2,300
$2,000

Credit Cards
Infinity Payment
Jeep Payment
Harley Davidson Payment
Student Loan Payment
Life Insurance
Auto Insurance
Mortgage Payment
Taxes

$6,300

401K Plan
401K Plan
Roth IRA
Brokerage Accout

$94,657
$65,581
$4,295
$3,700

Total Investment Assets

$4,740
$5,376
$3,360
$2,100
$3,360
$1,200
$2,016
$21,324
$9,600

Total Current Liabilities

$53,076

$168,233
Long Term Liabilities

Personal Use Assets

Personal Residence
Furniture
Jewelry
2010 Infiniti E35
2007 Jeep Patriot
Harley Davidson
Boat
Total Personal Assets

Total Assets
H = Husband Owns
W = Wife Owns
JT = Jointly Owned

$271,980
$12,300
$3,500
$38,500
$9,000
$21,000
$12,000

Mortgage
Infinity Loan
Jeep Loan
Harley Davidson Loan
Student Loan
Sears Credit Card
BB National Credit Card

Total Long Term Liabilities

$158,676
$36,624
$5,140
$15,900
$34,020
$7,800
$2,897
$261,057

$368,280
Total Liabilities
Total Net Worth
$542,813 Total Liabilities and Net Worth

$314,133
$228,680
$542,813

Statement of Income and Expenses

Mario and Meredith Sanchez
Statement of Income and Expenses for Past Year
Expected for 2013
Cash Inflows
Meredith's Salary
Mario's Salary
Dividend / Interest Income

Totals
$60,000.00
$84,000.00
$480.00

Total Cash Inflows

$144,480.00

Cash Outflows
Savings
Dividend/Interest Reinvestment
Mario's 401k contributions
Meredith's 401k contributions
Cash Savings Contribution
Mario's Roth Contributions

$480.00
$3,600.00
$3,600.00
$5,400.00
$2,760.00

Total Savings
Debt Payments
Mortgage Payment (PITI)
Infinity Payment
Jeep Payment
Harley Payment
Student Loan Payment
BB National Credit Card Payment
Sears Credit Card Payment

$15,840.00

$21,324.00
$5,376.00
$3,360.00
$2,100.00
$3,360.00
$2,340.00
$2,400.00

*
*
*
*
*
*
*

Total Debt Payments

Living Expenses
Cable
Alarm System
Internet
Gas
Cellphone
Water
Entertainment
Child Care
Home Repairs
Groceries
Dining Out
Hobbies
Club Dues
Dry Cleaning
Charity
Landscaping
Maid
Parking and Tolls

$40,260.00

$1,260.00
$468.00
$1,200.00
$3,600.00
$1,560.00
$960.00
$4,800.00
$14,400.00
$2,400.00
$6,000.00
$4,800.00
$3,600.00
$1,800.00
$1,920.00
$4,200.00
$3,600.00
$4,800.00
$540.00

*
*
*
*

*
*

Total Living Expenses

Insurance Payments
Life Insurance
Auto Insurance

$61,908.00

$1,200.00 *
$2,016.00 *

Total Insurance Payments

Taxes
Total Taxes (FICA and Income Tax)

$3,216.00

$9,600.00

Total Taxes

$9,600.00

Total Cash Outflows

Net Discretionary Cash Flow
* - Non-Discretionary expenses

$130,824.00
$

13,656.00

Financial Ratio Analysis

Liquidity Ratios
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
Mario and Meredith

Emergency Fund
1.28

Current Ratio
0.12

Industry Standards

1.5

Mario and Meredith

Industry Standards

Debt Ratios
80.00%
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%

Housing
Ratio 1

Housing
Ratio 2

Mario and Meredith

14.81%

Industry Standards

28%

Mario and Meredith

36.86%

Debt to
Total
Assets
57.87%

Net Worth
to Total
Assets
42.13%

36%

80%

20%

Industry Standards

Above we have a side by side comparison of your liquidity and debt ratios compared to
benchmark industry standards.
Liquidity Ratios
Your emergency fund ratio is 1.28, this ratio measures how many months of nondiscretionary expenses you can pay with your current cash. Your emergency fund at the
moment is less than 2 months. Right now this is one of the weaknesses we need to address, it
is recommended that you have 3 6 months.

Your current ratio is .12, this ratio measures how many times you can pay your current
liabilities with cash and cash equivalents. This is another weakness, you approximately have 12
percent of your current liabilities in the form of cash. It is recommended to have a current ratio of
1.0 2.0.
Debt Ratios
Your housing ratio 1 is 14.81%, this ratio helps determine how much housing debt is
appropriate for your level of income. The industry benchmark is 28% or lower, you are well
within those boundaries.
Your housing ratio 2 is 36.86%, this ratio is similar to the housing ratio 1 except it also
adds all other debt. The industry bench mark for this ratio is 36% or lower, you are slightly over
so it is recommended that you start paying down some debt.
One of your strengths at the moment is that for your age your net worth to total assets is
higher than what is expected. The net worth to total assets ratio lets us know how much of your
total assets are paid for. Typically for younger people it is around 20%, yours is 42.13%. This
ratio compliments the debt to total assets ratio, which indicates what part of your assets is
owned by creditors. Your debt to total assets ratio is 57.87%, this number should decrease as
you near retirement.

Ratios for Financial Security Goals

Two other relevant ratios are your savings rate and investment assets to gross pay.
Your current savings rate is 10.67%, this is the amount you are currently saving towards your
retirement goal. It is recommended that for someone your age the savings rate be closer to
13%, so to ensure that you are prepared for retirement we recommend increasing your savings
rate. The investment assets to gross pay ratio shows how much progress youve made towards
your retirement savings goal. Currently your ratio is 1.21, the recommended ratio for your age is
closer to 1.6 1.8.

Current Spending Analysis

Spending Categories
Insurance
payments,
$3,216.00 , 3%

Taxes, $9,600.00 ,
7%

Savings,
$15,840.00 , 12%

Debt Payments,
$40,260.00 , 31%

Living Expenses,
$61,908.00 , 47%
Savings

Debt Payments

Living Expenses

Insurance payments

Taxes

The pie chart above illustrates what percentage and how much of your total incoming
cash flow is spent on different expenditures.

Balance Sheet Pie Charts

The pie charts above were created using your balance sheet, they illustrate how your
assets and liabilities are broken down.

Questions, Concerns, and Recommendations

The following is basic information about the industry of financial planning as well as the
answers and recommendations to your questions and concerns. We hope to have answered all
of your questions and addressed all of your concerns, please let us know if you have any more
additional questions.
1.

There are four types of payment structures that Certified Financial Planners can use.

Fee-Only: Charge the clients a flat rate for a certain package of needed services, no
matter the work or value of customer.
Fee Based: This option uses a mixture of fees and commissions. These fees and
commission are based on the types of products they sell.
Commission-Only: The CFP charges nothing upfront, no fees, receives a percentage of
either the total value of the account or portion of the trades completed.
Fee-Offset: The same as Fee Based except the planner pays back some of the fees
from the commission he/she received.

There are 8 important licenses that allow Certified Financial Planners to sell certain types of
products.

Series 6 - Allows the CFP to sell mutual funds, variable annuities and insurance
premiums.
Series 7- Able to sell the same products as Series 6 as well as stocks and bonds.
Series 63 - A state license needed in addition to Series 7 or Series 6.
Series 65 - A state license required for anyone providing financial advice on a noncommission basis.
Series 66 - Only available to candidates already in possession of a Series 7 license.
Series 66 combines Series 63 and 65 together.
Group Life and Health - Allows holders to sell life insurance.
General Property and Causality License - Insurance for homes, cars, and businesses.
Insurance Advisor - Advises you on what or how much insurance you should buy.

Fiduciary responsibility refers to an ethical relationship between the client and planner. This is
very important, why would you trust your hard earned money, no matter the amount, to
someone you dont actually have faith in?
2.
The first task that Mario and Meredith should complete is to gather all personal records
and separate them into three piles; Active, Dead, and Discard. The Active pile consists of
important documents, whether it is bank statements, receipts, manuals, deeds, etc. These are
the documents you or your family need on a regular basis. The Dead pile consists of Active
documents that are over 3 years old. The Discard pile can include items like expired warranties,
old pay stubs, cancelled checks, etc. Of course all of these groupings can change from person

to person but with the application of these groupings, you can easily and effectively sort through
your documents. After gathering and sorting through your papers the next step is to set up the
storage. One of the easiest parts of this is using a safety deposit box to store the items that are
the most important, needed for long periods of time, but used infrequently such as deeds,
citizenship papers, or birth certificates. Make sure to have copies of some of these in other
storage options. There is the classic storage option of physical storage, which everyone should
have to some degree, or you can also scan the documents to keep copies electronically as well.

3.
With Mario and Merediths current mortgage they are on track to paying a total of
$112,643.05 in interest assuming they continue to pay $1,777 per month, which is $499.68
more than what their actual mortgage payment requires. By paying that extra amount each
month they were already on track to saving approximately $147,191 in interest costs. Both of
the refinance options have the disadvantage of having a $5,500 refinance cost. If they choose to
refinance with the 4.2% rate on a 15 year mortgage they have the benefit of paying the loan off
much quicker and paying much less interest, but they would end up with a higher monthly
payment of $1,390.79. If they choose to go with the 4.6% rate on a 30 year mortgage they
would end up having a much lower monthly payment of $950.96, but it will take 30 years to pay
off and approximately $156,843 in interest costs. We would recommend they take the 4.6% rate
on a 30 year mortgage and then continue to make payments of $1,777. By continuing to make a
large payment they would finish paying off the loan in approximately 11 years with only $51,878
in interest costs. Another reason we recommend this option is in case the family faces any
financial hardship they will have the flexibility to cut back on their payment, which would only be
$950.96. Something else we should address before any refinancing is their debt. While their
housing ratio 1 does fall within industry benchmarks, their housing ratio 2 is slightly too high. We
should consider paying down some debt before we decide to refinance.

The graphs below demonstrate a side by side comparison of the refinancing options.

Interest Cost
$300,000.00
$250,000.00
$200,000.00
$150,000.00
$100,000.00
$50,000.00
$-

Current
Mortgage

30 Year
Refinance

15 Year
Refinance

Interest Cost with Current payment

($1,777)

$112,643.05

$51,878.84

$45,762.87

Interest Cost with Regular payment

$259,834.35

$156,843.91

$64,841.64

Interest Cost with Current payment ($1,777)

Interest Cost with Regular payment

Payments Remaining
400
300
200
100
0
Payments Remaining

Current
Mortgage
149

30 Year
Refinance
360

15 Year
Refinance
180

4.
The numbers in the split limit liability policy refer to the max numbers of certain aspects of
a crash. The first $50,000 on the left refers to the maximum amount the insurance company will
pay out for an individuals bodily harm. The $100,000 refers to the total amount the insurance
company will pay for all individuals bodily harm. The last $50,000 on the right refers to the max
paid for any property damage. All of these numbers act as limits however, so the amount paid
can be less, but never more in your state. If you are driving into a state where the state
minimum is higher than the policy you have, your policy goes up to match the state minimum
policy. This will never work in the opposite fashion, this is implemented to always benefit the
consumer. The $500 deductible refers to the amount you have to pay before you can be
reimbursed while filing a claim. Do not file a claim for any amount of damages less than your
deductible because you will receive no money from the insurance company and you will see
your rates go up. A home being insured for full cash value means that the home owners will
receive an amount for the current value of the home, including depreciation. On the other hand,
replacement cost coverage is the value of replacing or rebuilding your home with similar
materials without deducting depreciation. I advise for the Sanchezs to choose one of these
policies, not both, because they might have increased coverage but they will be paying more
and wont receive payment from both policies.

5.
In order to make sure the $800,000 is insurable by the FDIC the Sanchezs have to either
split up the amount into separate accounts in separate banks, or separate insurable accounts in
different categories within one bank. To give the accounts breathing room putting $200,000 into
each account would allow them to have the interest accrued over time covered as well. This
means that they have to split the $800,000 over 4 accounts, it is up to the Sanchezs how to
split the amount. The basic FDIC insured account categories include; single person account
with no beneficiaries, a joint account with no beneficiaries, IRAs and certain other retirement
accounts, revocable trust accounts, and irrevocable trust accounts. The difference between
revocable and irrevocable trust accounts is that revocable can be changed, while irrevocable
cant be changed or revoked. Each of these categories gets totaled up individually and the total
insurable amount between categories is $250,000. With a moderate risk tolerance i recommend
the Sanchezs invest $150,000 in long-term government bond funds. These funds offer higher
rates of return than short-term government funds, with a little bit more risk, while still offering the
safety of government bond funds. Specifically, (PEDIX) PIMCO Extended Duration Instl., due to
its low expense rate of .50%, .25% administrative and .25% management, high rating within the
long government category from Morningstar and yahoo finance, and lastly consistent long term
rates of return that are always in the top of the category. For the remaining $50,000 they should
invest in index funds, specifically (VFINX) Vanguard 500 Index Fund Investor Shares. This fund
offers a low expense ratio, .17% which is 84% lower than funds with similar holdings, indexing
allows you the freedom of not having to constantly monitor your fund, and is managed under
one of the most reputable firms in the industry.