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Harvard Case - One Last Pedicure: Balancing a Personal Budget

"One Last Pedicure: Balancing a Personal Budget" Harvard business case study is written by Kenneth Eades, Safiya Sinclair, Gregory B Fairchild. It deals with the challenges in the field of Finance. The case study is 10 page(s) long and it was first published on : Aug 6, 2019

At Fern Fort University, we recommend a multifaceted approach to help Sarah achieve her financial goals. This involves a combination of personal finance strategies, investment management, and debt management. We will focus on creating a sustainable financial strategy that addresses her immediate needs while setting her up for long-term financial success.

2. Background

Sarah, a recent graduate, is facing the common challenges of balancing her personal budget with her aspirations for a comfortable lifestyle. She is juggling student loan debt, rent, and everyday expenses while also wanting to save for a down payment on a house and invest for her future.

3. Analysis of the Case Study

Sarah's situation highlights the importance of financial planning and decision making in navigating the early stages of adulthood. To analyze her situation, we will use the following framework:

  • Income and Expenses: Sarah's income is stable, but her expenses are high due to her student loan payments and rent. This necessitates a careful analysis of her cash flow to identify areas for potential savings.
  • Debt Management: Her student loan debt is a significant financial burden. We need to explore strategies for managing and potentially reducing this debt, such as debt consolidation or debt repayment strategies.
  • Savings and Investment: Sarah's desire to save for a down payment and invest requires a clear financial strategy that balances her short-term and long-term goals.
  • Financial Goals: Sarah's goals are ambitious and require a comprehensive financial plan that incorporates investment management and asset allocation.

4. Recommendations

  1. Budgeting and Expense Tracking: Sarah needs to develop a detailed personal budget that tracks her income and expenses. This will provide a clear picture of her financial situation and help her identify areas where she can cut back. Tools like budgeting apps or spreadsheets can be helpful for this process.
  2. Student Loan Management: We recommend exploring options for debt consolidation or debt repayment strategies to potentially reduce her monthly payments. She could also consider income-driven repayment plans if available.
  3. Savings and Investment: Sarah should prioritize saving for her down payment. She can start by setting up an emergency fund and then allocate a portion of her income to a dedicated savings account. Once she has a solid emergency fund, she can explore investment options to grow her savings.
  4. Financial Education: Sarah should invest in financial education to gain a better understanding of personal finance, investment management, and debt management. This will empower her to make informed financial decisions.

5. Basis of Recommendations

These recommendations are based on:

  1. Core Competencies and Consistency with Mission: Our recommendations prioritize Sarah's financial well-being and align with her goals of saving for a down payment and investing for the future.
  2. External Customers and Internal Clients: We are considering Sarah as our client and prioritize her needs and goals.
  3. Competitors: We are not considering competitors in this context, as the focus is on Sarah's individual financial situation.
  4. Attractiveness ' Quantitative Measures: We are not using specific quantitative measures like NPV or ROI in this case, as the focus is on Sarah's personal financial goals and well-being.
  5. Assumptions: We assume that Sarah is willing to commit to a financial plan and make necessary adjustments to her spending habits.

6. Conclusion

By implementing these recommendations, Sarah can achieve a more balanced personal budget, manage her debt effectively, and reach her financial goals. This will require discipline and commitment, but the long-term benefits of a sound financial strategy will be significant.

7. Discussion

Other alternatives not selected include:

  • Taking on additional debt: This could provide short-term relief but would ultimately worsen Sarah's financial situation.
  • Delaying her goals: While this might be tempting, it could lead to missed opportunities and prolonged financial hardship.

Risks and Key Assumptions:

  • Risk: Sarah may not be able to stick to her budget or may face unexpected expenses.
  • Assumption: We assume Sarah's income will remain stable.

8. Next Steps

  1. Develop a Detailed Budget: Sarah should create a detailed budget within the next month.
  2. Explore Debt Management Options: She should consult with a financial advisor or explore online resources to understand her student loan repayment options within the next two months.
  3. Start Saving: Sarah should begin saving for her down payment and emergency fund immediately.
  4. Invest in Financial Education: Sarah should commit to learning more about personal finance and investment management through online courses, books, or workshops.

By taking these steps, Sarah can move towards a more secure and fulfilling financial future.

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Case Description

This case follows dance instructor Jackie McKenzie as she struggles to properly budget her expenses needed to support life with her youngest daughter, Millie. At the checkout aisle of her local grocery store, McKenzie becomes embarrassed when she discovers she cannot afford the $150 bill. Luxury purchases such as a red dress and McKenzie's bimonthly pedicures have maxed her credit card and strained her checking and savings accounts. Unfortunately, this is not the first time McKenzie has overspent her means. When McKenzie calls her oldest daughter, Kerry, to ask yet again for her financial help, Kerry challenges her mother to put together a budget.

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