Dear Hopefuls Bishop,

Please find below a list of 24 principles that will assist the Hopefuls in becoming financially
independent. Let me know if you need any other assistance. They are a good family and I am
confident they will make it with a little repentance and sacrifice.
Respectfully,
Jeff Burkholder
Executive Director, Burkholder Financial Analytics
Chapter # 1
Principle #1: Financial Independence
To acquire financial independence, the Hopefuls need to be self-sufficient and not depend on
anyone else for their financial support. As I have talked to brother and Sister Hopeful, they have
expressed to me that they have received monetary income from Sister Hopefuls mother. She has
made payments for them from time to time. From their financial information, I have calculated
that Brother and Sister Hopeful have a net loss of $272.50 every month. Above all, they need to
cut back on their monthly expenses in order to be financially independent. Being financially
independent fosters a healthier environment for the family, less stress and better relationships
with others who have supported them monetarily in the past and more marital peace.
Principle #2: Personal Financial Planning
Since brother and Sister Hopeful have expressed that they are under significant stress in their
home, and Sister Hopefuls family is not well off, personal financial planning is of extreme
importance. I know that financial planning can help reduce stress, conflict, remorse, and negative
feelings and this couple is in dire need of this exercise. The six Ps of planning: Proper Prior
Planning Prevents Poor Performance, will help the family find out where they are, where they

want to be, and what it will take to get there. I am confident from my conversations with the
couple, that they have the three necessary things to accomplish this financial planning: the will,
the desire and the discipline. They can achieve their goal of being financially independent and
have peace.
Principle #3: Five Keys to Personal Financial Success
In the last meeting I had with Brother and Sister Hopeful, they expressed despair concerning
their financial situation. I suggested they conduct have a family counsel about financial health
and through this they would learn correct principles for everyones benefit. To help them succeed
in financial independent, and planning, they need to remember the five keys to personal financial
success. They are 1- Pay the Lord first and then yourself. 2- Collect interest. 3-You cannot retire
until your money goes to work! 4- Do not pay interest. 5- Prepare financial goals and make wise
financial decisions. The Hopefuls said they pay their tithing as well as other charitable
contributions. This is commendable. This will help them have the right mind and heart for
personal financial management as well as the Lords blessings. By collecting interest, and not
paying it, the couple will increase their earnings, and will have less stress not having to worry
about debt collectors knocking at the door- the proverbial wolf. Retirement at this point is not an
option because their money has not been going to work for them. But, by using the collecting
interest principle and compounding it, their money will go to work for them over time in an
investment. This will keep them free from financial bondage. Finally, by making wise financial
decisions and goals, they can measure the amount of time and results and be focused on their
personal values, being in a more participatory financial position with themselves as a couple and
as a family.

Chapter # 2
Principle #1: Balance Sheet
One of two important financial statements Brother and Sister Hopeful need is the balance sheet.
A balance sheet will show them their net worth. The couple, on their own, should look up all
their assets: liquid assets, investments, personal properly and real estate. They should add these
all together. Next, they should look up all their liabilities, current and long term. Once they have
a total of both, they can calculate their net worth by subtracting liabilities from assets.
Comparing their current financial position with their future, when it is realized, will be a useful
analytic. It is validating and confirms good behavior to have a benchmark to measure progress
against. When there is no understanding of ones starting point, it is hard to see improvement.
Principle #2: Cash Flow Statement
The second important financial statement the family needs is a cash flow statement. A cash flow
statement will show the couple their income and expenses every month. It will help to show
them what is happening with their money. As I have pointed out, they have a negative cash flow
of $272.50 every month. This financial statement is key to showing them they are exceeding
their income each month and falling further and further behind. By having a negative cash flow,
they have what is called a deficit. By helping the couple cut expenses, they will have increased
financial strength and they will spend less than they earn and invest the difference.
Principle #3: Budget
Brother and Sister Hopeful have expressed to me their desire to sacrifice and put their financial
life in order. A budget is a key way for them to achieve their financial goal of independence. A
budget also will help them manage their finances. A budget will give them a forecast of the cash
flow for every month. A budget shows them what they must sacrifice to accomplish their goal.

They will spend less than they earn, spend for needs rather than wants and save for emergencies,
expenses and investments. I have reviewed their finances and found they can retain all their
current expenses except five. The expenses they should cut back on are, charities (not tithing)
newspaper, bowling, home phone and cable TV. They already have mobile devices and therefore
do not need a home phone, they have internet so they will not need cable or a newspaper.
Bowling will have to be sacrificed. They already give to the church in tithing and they can cut
back on their other giving amounts. This will save them a total of $325 a month. This is
enough to cover their net loss and give them an extra $52.50 a month to go towards paying off
their debts.
Chapter # 3/9
Principle #1: Stock Investment
The Hopefuls have a profit sharing program where Brother Hopefuls Company contributes $150
a month to his 401(K). This is a good starting point for investing. The couple has wet their feet
in investing. They should also diversify this investing. One option for diversification is in stock
investments. To minimize their risk, they should take into account five simple rules: 1) dollar
cost average, 2) buy and hold, 3) diversify, 4) beat inflation, 5) ignore world events. I suggest
that the family sit down together and figure out what their risk tolerance is. I would advise a low
risk start. They should try and get at least a 10% return on all they invest. This is optimal, not
always obtainable but optimal. Although they cannot invest at the moment, they should keep in
mind the principles of investing for near future action. Wise investing makes your money work
for you and the Hopefuls are going to need that as soon as they can get their debt under control.

Principle #2: Mutual Funds

Mutual Funds are another way of diversifying the Hopefuls investment strategy. When the
Hopefuls purchase a mutual fund they purchase diversification and management. Of course there
are costs associated with mutual funds and these costs should be researched thoroughly. Some
are close-end funds and some are opened-end funds. Some mutual funds charge percentages;
some charge a fee and some charge no-load fees. It is best to research the funds they are looking
into to make sure the actual percentage rate is good, that it is managed well, that it is low in fees,
and that they are at or below the industry average for expense ratio. By so doing they will be well
abreast of the mutual funds available and by choosing well, lower their risk in investing.
Principle #3: Bonds
Another investment diversification good for the family is bonds. The Hopefuls need to be aware
that bonds are backed by either a corporation or the government. It is key that the family
understand that the corporation or the governments reputation is behind the bond. If it is not a
reputable corporation, I would highly suggest they not invest in those. The bond should be a
good interest rate and have a substantial annual yield. The family needs to remember that bonds
fluctuate as interest rates and the general economy changes. As a general rule, bond prices
decrease as the general interest rate increases and vice-versa. A bond with a government is
usually called a municipal bond, treasury note, bill or bond. Notes or bonds that are not
government bonds or notes are charged taxes. There are no taxes on government bonds. Bonds
are a more secure and less risky investment option than mutual funds or stock investment. The
disadvantage is that they can grow at a slower rate than some investments but they give a steady
income.

Chapter # 5
Principle #1: Consumer Credit
The Hopefuls have a considerate amount of consumer credit debt. At the current time, their
payments are $1,105.68 a month. Their ultimate goal should be to spend less than they earn
while letting their savings and investments work for them. It is wise of them to realize that by
using credit or borrowing money, even though it allows them to buy more, they actually will
spend more in the end. This is because of the interest costs they will accumulate over time. The
Church has counseled us to eliminate consumer debt. Financial experts say a family can afford to
spend 15 to 20 % of their net income on credit payments. At this time, the Hopefuls are
spending more than is reasonable and their financial problems will only compound if they
continue in this manner.
Principle #2: Saving vs Borrowing
A powerful lesson about consumer credit is looking at a comparison of savings verses borrowing.
If the Hopefuls, instead of paying a car loan, were to invest their monthly payment with interest
into an investment instead of paying it on the loan, in 28 months they would accumulate a grant
total of $6,064.13. That would be enough to pay for their car in cash. The family would be better
off financially to save and collect interest than to borrow and pay interest. This fundamental
strategy, that of saving verses borrowing, promotes financial well-being in a familys life.
Principle #3: FICO Score
The Hopefuls report they have received debt collection phone calls at home. Clearly, they have
missed payments and their FICO credit score is low. This would be a red flag to any potential
lender. A FICO score is a very important number based on five criteria: 1) payment history, 2)
amounts owed, 3) length of credit history, 4) new credit and, 5) types of credit used. The largest

percentage in the FCO score is payment history. Payment history is 35% of the overall group of
credit data categories. When a family is in debt collection, their payment history is extremely
poor. If the family were to refinance, it would cost them much more, in fact most lenders would
not loan any money for a refinance or refinance it at a lower interest rate. If they did perform
these procedures it would cost the Hopefuls more in the end because they would be charged
higher interest rate. The difference between a 600 and 700 credit score could be $1000s in
interest fees.
Chapter # 6
Principle #1: Transportation Alternatives
The breakdown of the familys transportation expenses and monthly debt payments for the use of
transportation costs them an average of $582.72 a month. If the family were to use a bicycle,
public transportation or ride share, they would minimize their transportation expenses. The
tradeoffs of using alternatives to a car can be significant and include: time, image, status and
convenience. But, as Benjamin Franklin reminds us, a penny saved is a penny earned. For
example, if the family took their bikes to public transportation and then this means to their
destination, they could save themselves a substantial amount of money. A disadvantage to public
transportation is it sometimes does not serve the areas one needs. Financial peace of mind might
be worth the trouble.
Principle #2: Cost of Ownership
There are substantial costs to owning a car. The Hopefuls have two cars. The total costs of
owning and operating a car comprise two costs. There are fixed costs and variable costs. The
fixed costs are depreciation, loan interest, insurance, license, registration and taxes. Variable
costs include: gasoline, oil changes, tires, repairs, tolls and parking. It is important to know that a

two-year-old car will cost significantly less than a new car to own and operate. The major
difference is depreciation. Since we do not know the condition or the year of the Hopefuls
vehicles, it is best to mention that the longer they keep the car, the less they will have to worry
about depreciation. The Hopefuls have a car loan and so in addition to paying for their variable
costs, they are paying interest on their car as well as the principle on the loan. I am allowing
them to keep their two cars, although if they can make the sacrifice, they would free themselves
from the car loan and pay off other debts substantially quicker.
Principle #3: Vehicle Financing
As I stated earlier, the cost of financing a vehicle can be substantial. It is always best to pay cash
for a vehicle if possible. There are also alternative sources for buying a vehicle. A good way to
purchase a vehicle is to save for the purchase of that vehicle. By saving, you earn interest on the
savings and save yourself substantial financial interest charges on the cost of the loan for the
vehicle. The best place to find vehicle financing is with credit unions. They offer car loans at
substantially lower interest rates with fewer fees. The Hopefuls already have a car and a payment
on one of the cars. Once they pay for this car, I would recommend they wait or practice delayed
gratification before their next car purchase. Their goal should be to pay off their car debt and
save cash for their next car purchase.
Chapter # 7
Principle #1: Renting vs Home Ownership
The Hopefuls own their own home and it is currently worth $175,000. They have two mortgages
at the present time of $49,612.40 and $119,412.57. This is a total of $196,024.97 in mortgage
debt. They only have $5,975.03 in home equity. If they were to sell their home at the current
value, they would be able to pull some of that equity out and maybe pay off their car loan.

Renting instead of buying, of course provides more flexibility, lower maintenance costs and a lot
less up-front cash comparted to home ownership. If the Hopefuls were to rent instead of own,
they would lose out on some tax benefits of home ownership and the appreciating value of their
investment and decreasing of the principle. In the provided Excel spreadsheet I have prepared, I
recommended that the family stay in their home. Moving a family is very unsettling and
disruptive and in some cases a crisis. They would be able to pay off their loans and debts if they
were to rent after selling their home, but for the sake of sanity, I feel it is best they stay in their
home.
Principle #2: Qualifying for a Mortgage
Mr. and Mrs. Hopeful have two mortgages on their home. When purchasing a home, it is usually
best to only buy a home valued at about two and half times your annual income. The Hopefuls
home, valued at $175,000, is more than their annual income times two and a half. Since they
already have two mortgages, they are more than likely paying private mortgage insurance. This
adds to the amount they will pay in total for the home. To refinance, would not be an option
because they would not be able to qualify for another mortgage. As I explained before, they need
to have a good credit rating. Since they have debt collection phone calls, it is apparent their
credit rating is not ideal. If they were at a better credit rating with good credit and no debt
collection calls, I would have suggested that they refinance their home. A refinance may be an
option later on, but with the scenario I have provided, they should be able to pay off their home
in a little over 8 years if they discipline themselves.

Principle #3: Home Ownership

In the proceeding principles, I mentioned private mortgage insurance (PMI). This is one cost
along with taxes, maintenance fees, landscaping, yard maintenance, painting, decorating, fixing,
and home repair costs. Along with these expenses, are the amounts of time and scheduling
required to fix or maintain the home. The Hopefuls need to be aware that they should set aside
some money, when it becomes available, for emergency expenses that may arise from home
ownership. Therefore, when they have an emergency they will have the money on hand to pay
for the expense or item they need to buy and not be overly stressed.
Chapter # 8
Principle #1: Home and Property Insurance
Homeowners and property insurance are a must for the Hopefuls. Their home is a major asset to
the family. It is ideal that they have personal property coverage for any loss of belongings,
expensive items and personal liability coverage. The family should look into buying an actual
cash-value or a replacement-value coverage. An actual cash value home owners insurance pays
only the depreciated value of any lost or damaged items. Replacement value coverage will repair
or replace lost or damaged items but it is more expensive. The family should look for discounts
in home owners insurance for their security systems, deadbolt locks, smoke detectors and fire
extinguishers. In the event they lose their home, the coverage will pay for their cost of living
elsewhere while they home is being repaired.
Principle #2: Automobile Insurance
The Hopefuls own two cars and the family uses both of them. Depending on the age of the cars,
I would suggest either liability or comprehensive insurance. If the car that is paid off is older
than five years I would suggest liability insurance. They should have comprehensive insurance
on the car with the loan, which is incidentally, required with a loan. For coverage on both cars, I

would suggest a high amount of coverage in all three areas of insurance protection. For example,
a 100/300/50 coverage would be a good starting point for insurance coverage. The first number
covers bodily injury for one person, the second number covers bodily injury for all people
combined in an accident, and the last number covers property damage. In case of an accident,
this would give them assurance they would be covered and not have to pay out of their own
pocket.
Principle #3: Health Insurance
I would highly recommend the family have good health insurance. Mr. Hopeful has medical
insurance with his company. The cost of health care and medical expenses can be great at times
and they should not be ignored. For many families a health crisis or even a small health issue can
be financially devastating. To reduce the risk of health emergencies the family should eat healthy,
exercise regularly, live the word of wisdom, get sufficient rest, avoid hazardous activities, pray,
attend church and serve others. Ideally, their health insurance plan should cover at least 80% of
hospital and doctor bills, limit out of pocket expenses to no more than $5000 a year and provide
$1M life time maximum per family member. This level of health insurance will provide peace of
mind and allow the family to get the health services they will surely need.
Chapter # 10
Principle #1: Employer Plans
There are two basic types of employer retirement plans: defined benefit plan, and definedcontribution plan. For the benefit plan, the employee pays a specific month benefit per month
after one retires. For the contribution plan, the employer pays into the plan and whatever the
account balance is when one retires it is provided to the individual at retirement. Mr. Hopeful has
a contribution plan since he has a 401(K) plan with his company. His company does not

contribute very much to his plan therefore it will not grow at a substantial rate in the coming
years. When the family is able to, I suggest Mr. Hopeful match the highest contribution the
company gives to his 401(K) plan. Since not much is being contributed to the plan, it is likely
there wont be much for his retirement. It is good to have this investment, though, as a secondary
retirement plan.
Principle #2: Personal Retirement Plan
After the Hopefuls have paid off all their debts, I recommend they invest in a personal retirement
plan. A Roth IRA would be the best option for the family. They will be able to withdraw at
retirement, tax free income that they have acquired. In addition, they can still contribute to a
Roth IRA beyond the age of 70 which is not allowed with a standard IRA. In the plan that I
outlined in the Excel spreadsheet, after paying off all their debts in 99 months, beginning at the
100th month and paying into through the 360th month they will accumulate well over $2M. This
along with their 401K with Mr. Hopefuls company should more than meet their retirement
needs.
Principle #3: Preserve Your Investment Principle
Preserve your principle! A good strategy is to preserve your principle or the amount you saved or
invested. Before and after retiring, the family should live only on the income they generate and
not on their investments. As long as a family does not liquidate their invested assets, they will
never run out of retirement income. If they must use investments, they should be very certain
they will have enough left over to last the rest of their lives. I recommend they start early and
accumulate as much as possible in retirement savings. This will save them a lot of heart ache and
stress and should be an avenue for them to enjoy the twilight years of their lives.