(This is the conclusion in the life of Joe and Tanya Smith. To get the full sense of their lives see the first article July 17, 2003 go to www.theroyalgazette.com and type in Martha Myron under Search.)

Why would they possibly need the help of a financial planner? Why don't they just get a budget together and buy some investments? After all, that's what all the cozy feeling ads we see on financial news networks and media say, "just embrace your dreams". The Smiths don't need any advisor to tell them they have a monthly shortfall of $1,100 and that their financial life is falling apart. It's the planning ahead, the use of projections, various what-if scenarios and making objective choices that they are not able to cope with alone. They feel so frustrated when talking about money they immediately are in conflict, and nothing gets resolved.

Last week, we left them in a complete chaos, facing lower rental income, restricted part-time work, and an uncertain economy as Tanya sees many of her co-workers receive redundancy notices. Mother-in-law steps in and bails them out figuratively (with a $50,000 loan) and literally by providing after-school care (another savings of $2,500 per year). You might think that the first thing they should do with the loan is pay down the mortgage. You thought wrong. What about investing in a diversified portfolio? Wrong again! How will either of these moves alleviate their cash crunch? Investing is for the long-term horizon; they need to solve their financial crisis first.

They decide that they will not touch Mom's Money - as it is known. It will be the refuge of last resort.

They hire an independent fee-only financial planner who provides client financial solutions and does not sell any investment products. He/she has analysed their entire financial profile.

Financial Plan Recommendations - In Order Of the Action Steps They Must Take.

Increase Family Current and Future Cash Flows. Tanya's skills would be far better utilised by co-ordinating Joe's business marketing, contacting customers & collecting receivables, scheduling jobs, reviewing purchase orders, monitoring accounts, and building a revenue/cost projection model. Joe has $15,000 in outstanding receivables, which she swiftly gathers in (more than she made all last year at the bar). There are setbacks; not all delinquent customers pay up. She handles this new responsibility in the evenings after work. Saturdays are for visiting old clients, asking for referrals, and lining up new customers. She develops a rapport with these clients; and at their request, is soon trying her hand at landscaping design.

Drastically Reduce Current Family Expenses.

Cut 50% (or more) from the following monthly expenses;

Utilities; cable; lunch out/snacks; personal/pocket money; household furnishings, special goal. Net savings - $655. No vacation at all this year net savings $300 for a total of $955. They are close, but not close enough and will have to hit their savings for the shortfall. The kids don't want to their friends to think they are poor; Crystal, especially, feels humiliated. For the time being, they will dip into their savings for the shortfall.

Make an Appointment with Their Bank Mortgage Officer. It's a heads up alert to arrange for interest only mortgage payments and a home equity line, just in case. Joe hates this recommendation, too embarrassing for someone who prides himself on always paying cash. So Tanya goes, armed with a cash flow plan (prepared with their financial planner's help) that demonstrates upward economic progress. Their bank officer is so impressed with their work ethic, also refers them some business prospects.

Purchase Life Insurance. The Smiths are so deficient it is scary. They can squeak by with premiums on $250,000 in term insurance for Joe. If he dies today, at least most of the mortgage balance is covered.

Purchase Disability Insurance. Expensive in Bermuda, they purchase enough coverage for the mortgage payments if Joe cannot work. Statistically, he has a one in four chance of a severe accident than he does dying.

Education - start now to explore all avenues available for scholarships, intern programmes, and financial support for Crystal's university education. In two years, Tanya will also enrol in night courses.

Get Their Personal Estate in Order. They execute wills and choose guardians for their children.

Set up a Pension Plan for Joe and Provide Business Succession Planning. Joe approaches a friendly rival (Gene) with a merger proposition, the better able to compete for the bigger jobs, turn their cash flow quicker, avoid duplication in equipment, and use strategies to leverage buying power, not to mention the mental relief in having a reliable backup if either of them is incapacitated. They incorporate successfully, implementing a benefits package for all employees and a key-man succession plan for each other.

One year from now. Start a small forced savings and investing program based upon their financial risk profiles. This is very painful, they want to pay off all debt then start investing. "Not a good approach," says their planner. "You are not diversified. You must be invested in broad array of investment products.

Two years out increase savings by another 10%, keeping enough liquidity for further education.

Three years out estimate Tanya finishes night school, receives an accounting degree and be in line for a Professionally compensated job. Use increase for a good vacation, and save the rest.

Five years out Crystal in on her way to graduation and university, George is in private school. They are all doing very very well.

Ten years out. Their mortgage is paid off! Their savings and investing increase exponentially. There is time now for them. See financial progress chart.

In Retrospect, After the First Year, The Smiths Stop for a Breather.

It has been excruciatingly hard for the entire family. Imperceptibly, revenue picks up from Tanya's friendly collection approach. Cash flows increase further as Joe and Gene aggressively solicit new business, emphasising their impeccable service reputation. They are just covering all their expenses - Mom's Money untouched. There is some light at the end of the tunnel. Most importantly, they have their financial lives in order and a plan to secure their financial future.

Martha Harris Myron CPA CFPr is a Bermudian, a Certified Financial Planner™ (US licence) practitioner and VP, Personal Financial Services at Bank of Bermuda. She holds a NASD Series 7 license, and formerly owned a US financial services practice meeting the needs of 400 individual and corporate clients.

Confidential Email can be directed to marthamyron@northrock.bm

This composite case experiences are derived from many years of providing financial planning services. It is in no way intended to resemble any living or deceased individual and any resemblance is purely coincidental.

The article expresses the opinion of the author alone, and not necessarily that of Bank of Bermuda. Under no circumstances is this advice to be taken as a recommendation to buy or sell investment products or as a promotion for financial plans. The Editor of the Royal Gazette has final right of approval over headlines, content, and length/brevity of article.