Financial Statements Project

The purpose of this assignment is to develop a financial plan for the Jones Family.

Socio-demographic Profile of the Family

John Jones is currently 28 years old and married to wife, Kate who is also 28. They twin two-year old daughters and do not plan to have more children. They live in Huntington Beach, CA in a 2-bedroom condo that they purchased just this month at the price of $550,000, with a 20% down-payment. They are planning to rent out this condo when they can afford to buy a home. Their current mortgage for the condo is $1,800 per month with an Association fee of $200 per month. Their home is nicely furnished with furnishings they financed from Pottery Barn, worth about $10,000.

When they purchased the condo it was supplied with new appliances. The complex has a pool, playground and BBQ Area so there is not too much more they need. Their property taxes are paid with their mortgage to their bank. They are saving to buy a home in 5 years and anticipate needing about $25,000 as a down payment. John and Kate know buying a home will bring many expenses such as new appliances (maybe down the road), and moving expenses. They plan to start a savings plan to be able to have more than the $25,000 down payment for extra expenses for their new home.

They have two cars; one is a 2013 Ford truck that is paid off and probably worth $10,000.

Kate drives an Audi, probably worth $18,000 that they make $300 per month payment on for one more year.

John is the finance officer of a nearby hospital where Kate is a Physical Therapist. Their combined income is close to $128,000 a year. (They make close to the same amount). They have good health insurance through their jobs and only pay $250 per month pre-tax to cover both the dependent children for medical and dental. They have minimal life insurance so they bought an additional 20-year term life plan that only costs $20 per month. They both still owe about $20,000 each in student loans and each are paying $200 per month, each, (pre-tax - government aid student loans) and once those are paid off they will be in a better situation to really start saving for retirement.

The utilities run them about $150 per month (gas, power and water is $100, and cable is $150).They have a modest cell phone package costing about $80 per month. Currently John and Kate each put $100/month into their company pension 401k plans. Their pension plan balances are roughly at $12,000 each. They would like to put more into their plans once they get their home and their student loans paid off. Their credit union savings account has a current balance of $5500. They are not sure if this is an adequate emergency fund. They are hoping to figure out where they should be putting extra funds in order to reach their financial goals.

They live comfortably and are not really materialistic people. They enjoy the outdoors, beach, camping, hiking, skiing and do not really take extravagant vacations. They hope to take their children on a Disney Cruise in two years. They anticipate that vacation would cost about $5,000 and are saving for it with a special flex CD savings account through the credit union. They enjoy going to Disneyland so they have annual passes that cost them $55 monthly. They own a two-seater kayak and two paddleboards and use them locally most of the time. They estimate their personal belongings to be worth about $10,000. They enjoy sporting events and do save up about $100 per month to go to a professional game.

Kate's mom watches the kids, so they save quite a bit on childcare, although they do pay her about $400 a month just for things she needs while taking care of them. They also budget an additional $100 for other babysitting needed for date nights! College planning is already a long-term goal of theirs so they do put $100 per month away in one account for their twins, with the current balance of $1,200. They have one major credit card, with a balance of $900, and try to keep it paid off each month and only use for vacations and emergencies. The Pottery Barn card still has a balance of $1,200 from when they purchased their furniture.

They are trying to learn how to avoid debt and to save for what they need. They currently do not have any pets.

You are to use the following sheets as a guide in assembling your project. You can use any delivery method as far as Word, excel, quick books, etc. to process your assignment.

Your finished assignment should be uploaded into BeachBoard in a format that is compatible. Please do not upload any JPEG or Dox documents.

Income Worksheet - Tax Calculation to get AGI

Filing status - Married

Income #1 - John's Income

$

Income #2 - Kate's Income

$

Total Gross Income

$

Deductions

Health Benefits

$

401k

#1

$

#2

$

Student Loans

#1

$

#2

$

Adjusted Gross Income (AGI)

Exemptions

4 x $

$

Standard deduction

$

Taxable income

CA Tax (6%)

$

Federal Tax (use steps shown in class to calculate the tax in each tax bracket)

$

FICA

$

Total Tax

$

Child Tax Credit

$

AGI Total Tax

$

(carry this amount over to budget)

Please show your work on how you calculate the Federal Tax using the bracket method shown in class.

Begin your Income / Expense Statement with AGI - total tax

Income / Expense Statement (Budget)

MonthlyAnnually

Income (AGI-Tax)

Fixed Expenses

Mortgage payment

Home Owner Association

Utilities

Gas, electricity, water

Cable & phone (cell)

Car Payment

Life insurance

Car insurance

Homeowners insurance

Total Fixed Expenses $

Variable Expenses

Food (groceries)

Food (eating out)

Childcare

Additional babysitting

Entertainment

Disney Passes

Car maintenance / gas

Baby supplies/ diapers

Doctor Office Visits & RX

Haircuts

Clothing misc.

Repairs

Debt / credit card payments

Savings for the goals

Emergency Fund Savings

Bikes for the twins

Summer vacation

Sports Tix

Disney Cruise

New TV

Truck Tires

Down Payment Home

College Savings

Total Variable Expenses$

INCOME - EXPENSES =$

Net Worth Statement

Net Worth = Total Assets - Liabilities

Monetary Assets

Investment assets

_________

_________

Liquid assets

__________

Total monetary assets: $

Physical Assets

__________

__________

__________

__________

Total physical assets: $

TOTAL ASSETS$

Liabilities

__________

__________

__________

TOTAL LIABILITIES$

TOTAL NET WORTH$

Goals

SHORT TERM GOALS

Goal

Amount Needed

Month/Year needed

Date Saving Starts

# months to save

Interest Rate Earned

Savings Vehicle Used

Monthly Amount to Save

Bikes

$250

Vacation

$1500

Sport Tix

$100

INTERMEDIATE GOALS

Goal

Amount Needed

Month/Year needed

Date Saving Starts

# months to save

Interest Rate Earned

Savings Vehicle Used

Monthly Amount to Save

Cruise

$5,000

TV

$600

Tires

$800

LONG TERM GOALS

Goal

Amount Needed

Month/Year needed

Date Saving Starts

# months to save

Interest Rate Earned

Savings Vehicle Used

Monthly Amount to Save

Home-down

$25,000

College

$100

Retirement

$200

You can create your own goal spreadsheet. Be sure to have three goals in each category that fit the demographic of the Jones Family.

Financial Ratios

Measures of Current Financial Status:

1. Consumption-to-Income Ratio: amount of spending from one's budget divided by disposable income

(Rec.: approx. 70-90% if using 10/20/70 Budget)

2. Basic Liquidity Ratio: amount of time, in months, a family can meet its expenses with its monetary assets (liquid assets in savings and checking)

To find, add up all liquid assets and divide by monthly expenses.

(Rec.: 3 to 6 months)

Measures of Debt Burden:

3. Consumer Debt- Service Ratio: credit card and auto debt repayments by your disposable income, expressed in a Monthly figure

(Rec.: < 11%)

4. Annual Debt-Service Ratio: same as above plus one's mortgage payment, expressed Yearly.

(Rec.: < 40% for Homeowners; < 15% if Renting)

Measures of Progress toward Goals:

5. Long-Term Savings-to-Income Ratio: take the amount one is saving for long-term goals such as college and retirement and divide by disposable income (monthly or annually)

(Rec.: 10% if using 10/20/70 Budget)

Analysis

Please write up a one-page analysis of what these ratios tell you about the financial condition of the Jones Family. Please include any thoughts on what you have learned from this process. Is there is any advice you would offer this family?