Unit 2 Project PFI PDF

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PFI unit 2 project...

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Introduction to Personal Finance Unit 2 Project Learning Goals: ▪ Understand how financial statements & ratios and basic tax fundamentals impact the financial planning process. Harry and Sally Jones heard that you were taking the PFI/PFP 3301 course at Texas Tech University. Due to their limited knowledge in personal finance they are in a desperate need of your help! They want to know how well they are doing financially and how could they improve their situation. Based on information they provided to you: 1. Construct their Balance Sheet and their Cash Flow Statement. 2. Calculate their financial well-being through the use of Ratios. 3. Explain their financial well-being and recommendations. Harry's Salary

$

24,000

Sally's Salary

$

24,000

Home value

$

200,000

Mortgage payment

$

12,000

2010 Lexus fair market value

$

38,000

Checking Account balance

$

900

Groceries

$

6,000

Investment Account balance (that holds mutual funds)

$

500

2010 Lexus loan payment

$

6,000

Past Due Utility Bill

$

200

Utilities Expenses

$

1,200

Credit Card balance

$

1,000

Entertainment

$

2,400

2010 Lexus loan balance

$

25,000

Stamp Collection

$

1,900

Gas

$

3,600

Mortgage balance

$

180,000

Credit Card payments

$

2,400

Jewelry

$

100

Savings set aside each year towards a new car

$

600

Tax Refund

$

1,000

Money Market Account balance

$

2,000

401(k) Account balance

$

500

Cash

$

100

Auto Insurance payments

$

960

Cash Flow Statement Harry and Sally Jones January 1, 2018 - December 31, 2018 CASH INFLOWS

Income

Annual Amount

Harrys salary

$24,000

Sallys Salary

$24,000

Tax Refund

$1,000

Total Cash Inflows

$49,000

CASH OUTFLOWS LIVING EXPENSES Fixed Expenses

Annual Amount

Mortgage payment

$12,000

Auto insurance payment

$960

2010 Lexus Loan Payment

$6,000

Total Fixed Expenses

$18,960

Variable Expenses

Groceries

$6,000

Entertainment

$2,400

Gas

$3,600

Credit Card Payment

$2,400

Utilities

$1,200

Savings for a new car

$600

Total Variable Expenses

$16,200

Total Living Expenses

$35,160

NET DISCRETIONARY CASH FLOW

$13,840

Harry and Sally Jones Balance Sheet as of December 31, 2018 ASSETS

LIABILITIES & NET WORTH

Monetary Assets

Amou nt

Checking account balance

$900

Current Liabilities

Amou nt

Cash

$100

Credit Card Balance

$1,000

Money Market

$2,000

Past Due Utilities Bill

$200

Total Current Liabilities $1,200 Total Monetary Assets $3,000 Long-Term Liabilities Investment Assets Investment Account Balance

$500

$25,00 2010 Lexus Loan Balance 0 Mortgage balance

Total Investment Assets $500

$180,0 00

Total Noncurrent Liabil- $205,0 ities 00

Retirement Assets 401K Account Balance

$500

$206,2 Total Liabilities 00

Total Retirement Assets $500 $37,80 Net Worth 0 Housing Home Value

$200,0 00

$200,0 Total Housing 00

Automobiles and Personal Property 2010 Lexus fair market value

$38,00 0

Jewelry

$100

Stamp Collection

$1,900

Total Automobiles and Personal $40,00 Property 0

$244,0 Total Assets 00

Total Liabilities and Net $244,0 Worth 00

Financial Well-Being Analysis Harry and Sally Jones RATIOS

Area

Calculation

Living Expenses Covered Ratio

Monetary Assets / Monthly Living Expenses

Debt Ratio

Total Liabilities / Total Assets

Debt Service to Income Ratio

Annual Debt Payments / Gross Annual Income

Saving Ratio

Annual Savings / Annual Living Expenses

Investment Assets to Total Assets Ratio

(Investment Assets + Retirement Assets) / Total Assets

How well is Harry and Sally managing their finances? Provide examples from the financial statements and ratios. They are not managing their finances very well. They seem to be living above their means which can be very easy to do if you aren't aware of all your finances. Their savings and debt ratios are in the recommended range, but those seem to be only 2 in the recommended range.

What area(s) can Harry and Sally improve on with their finances? Provide examples from the financial statements and ratios. (minimum 50 words) I think that if Harry and Sally could cut down their living expenses it would help in factoring into paying off debts and help their finances in general. I also think that if they could put more of their discretionary cash flow into investing it would help in the long run. Its always a good idea to put more money into savings wherever you can....