Shelby Johnson has a flair for grooming dogs and cats. She hopes to open her own

Question

Shelby Johnson has a flair for grooming dogs and cats. She hopes to open her own pet salon when she graduates from college. She is currently completing her sophomore year in business while working at a local pet store. Shelby has been living with a roommate (Melinda) in an apartment near her work in order to reduce her living expenses. However, she continually uses her credit card to make ends meet.

Her personal property consists of a 2005 car ($5,550) that gets great gas mileage, a television set with a DVD player ($400), a digital camera ($50), a laptop computer ($400), clothing ($300), and some furnishings valued at $600 (bed, dresser, lamp, clock, couch) with a total value of $7,300.

Shelby’s life situation: Single, Age 21, No dependents, College student

Shelby’s financial data: Monthly income $1,750; Living expenses $1,210; Personal property $7,300; Savings $2,000; Student loan $3,000; Credit card debt $2,400.

1. Given her current situation, list various personal financial decisions that Shelby may be considering at this point in her life.

2. Describe what short-term, intermediate and long-term goals Shelby should develop using the “Setting Personal Financial Goals” sheet located at the back of the text.

3. What types of time value of money calculations would be helpful for Shelby?

Explanation / Answer

1) The various decisions that Shelby may be considering are:

2) The short term goal shall be to pay of minimum balance requirement of the credit card loan or the full loan payment using savings as soon as possible. Short term goal can also be cutting expenses and saving more.

Intermediate goals shall be to look for a better paying jobs and try to payoff student loans while working during college itself.

The long term goal would be to pay off the loan if not already paid by getting a good job after college. Also she should start saving for future then as earlier the savings start better it is.

3) The time value of money calculations that would be helpful are:
How much would be the future value of the student loan that she would accumulate at the end of college. Also if she wants to pay it in installments, how much would each installment cost her per month from her salary post college.

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