Harry has worked at a medium-size interior design firm for five years and earns a salary of $4,080 per month. He also receives $3,000 in interest income once a year from a trust fund set up by his deceased father's estate. Belinda earns a salary of $6,400 per month, and she has many job-related benefits including flexible benefits program, life insurance, health insurance, a 401(k) retirement program, workplace financial education, and a credit union. The Johnsons live in an old apartment located approximately halfway between their places of employment. However, their rent will increase by $100 a month in July. Harry drives about ten minutes to his job, and Belinda travels about 15 minutes via public transportation to reach her downtown job. Harry and Belinda's apartment is very nice, but small, and it is furnished primarily with furniture given to them by some of his friends. Soon after getting married, Harry and Belinda decided to begin their financial planning. Fortunately each had taken a college course in personal finance. After initial discussion, they worked together for three evenings to develop the financial statements presented below. Note that the cash flow statement covered the first six months of their marriage.

Balance Sheet for Harry and Belinda Johnson
January 1, 2018
ASSETS
Monetary Assets
Cash on hand		1,050		3.6%
Savings (First Credit Union)		1,200		4.1%
Savings (Far West Savings Bank)		4,000		13.6%
Savings (Homestead credit union)		2,260		7.7%
Checking account (First Credit Union)		2,100		7.1%
Total monetary assets		$10,610		36.0%
Tangible Assets
Automobile (3-year old Toyota)		11,000		37.3%
Personal property		2,400		8.1%
Furniture		1,700		5.8%
Total tangible assets		$15,100		51.2%
Investment Assets
Harry's retirement account		1,170		4.0%
Belinda's retirement account		2,600		8.8%
Total investment assets		$ 3,770		12.8%
Total Assets		$29,480		100.0%
LIABILITIES
Short-Term Liabilities
Visa credit card		390		1.3%
Target credit card		45		0.2%
Dental bill		350		1.2%
Total short-term liabilities		$ 785		2.7%
Long-Term Liabilities
Vehicle loan (First Credit Union)		13,800		46.8%
Student loan (Belinda)		8,300		28.2%
Total long-term liabilities		$22,100		75.0%
Total Liabilities		$22,885		77.6%
Net Worth		$ 6,595		22.4%
Total Liabilities and Net Worth		$29,480		100.0%

Cash-Flow Statement for Harry and Belinda Johnson July 1-December 31, 2017 (First Six Months of Marriage)
Cash Flow		Dollars		Percent
INCOME
Harry's gross income		24,480		37.1%
Belinda's gross income		38,400		58.1%
Interest		180		0.3%
Harry's trust fund (Annual)		3,000		4.5%
Total Income		$66,060		100.0%
EXPENDITURES
Fixed Expenses
Rent		9,600		14.5%
Health insurance		1,800		2.7%
Life insurance		120		0.2%
Renter's insurance		220		0.3%
Automobile insurance		600		0.9%
Auto loan payments		2,940		4.5%
Student loan payments		1,800		2.7%
Cable TV and Internet		960		1.5%
Savings/emergencies		960		1.5%
Harry's retirement plan		1,170		1.8%
Belinda's retirement plan		2,400		3.6%
Federal income taxes		10,200		15.4%
State income taxes		3,000		4.5%
Social Security taxes		4,640		7.0%
Automobile registration		300		0.5%
Total Fixed Expenses		40,710		61.6%
Variable Expenses
Savings money market fund		$ 3,000		4.5%
Food (home)		3,800		5.8%
Food (out)		1,860		2.8%
Utilities		1,320		2.0%
Cell phones		660		1.0%
Auto gas/maintenance/repairs		1,150		1.7%
Doctor's and dentist's bills (non-credit)		1,140		1.7%
Medicines		350		0.5%
Clothing and upkeep		1,200		1.8%
Church and charity		550		0.8%
Gifts		1,070		1.6%
Public transportation		940		1.4%
Personal allowances		2,400		3.6%
Entertainment		960		1.5%
Family holiday trip		780		1.2%
Summer vacation		1,200		1.8%
Miscellaneous		560		0.8%
Total Variable Expenses		$22,940		34.7%
Total Expenses		$63,650		96.3%
SURPLUS (DEFICIT)		130		0.2%

1. Briefly describe how Harry and Belinda probably determined the fair market prices for each of their tangible and investment assets.

   The input in the box below will not be graded, but may be reviewed and considered by your instructor.

2. Using the data from the cash-flow statement developed by Harry and Belinda, calculate the following financial ratios. Round your answers to two decimal places.

   Liquidity ratio	%
   Asset-to-debt ratio	%
   Debt-to-income ratio	%
   Debt payments-to-disposable income ratio Hint: For disposable income, take into consideration health life insurance, as well as federal, state, and social security taxes.	%
   Investment assets-to-total assets ratio	%

   What do these ratios tell you about the Johnsons' financial situation? Should Harry and Belinda incur more debt, such as credit cards or a new vehicle loan?

   The input in the box below will not be graded, but may be reviewed and considered by your instructor.

3. The Johnsons enjoy a high income because both work at well-paying jobs. They have spent parts of three evenings over the past several days discussing their financial values and goals together. As shown in the upper portion of Figure 3-5, they have established three long-term goals: $6,000 for a European vacation to be taken in 2020, $5,000 needed in October 2021 for a down payment on a new automobile, and $30,000 for a down payment on a home to be purchased in December 2023. As shown in the lower portion of the figure the Johnsons did some calculations to determine how much they had to save for each goalover the near termto stay on schedule to reach their long-term goals as well as pay for two vacations and an anniversary party. After developing their balance sheet and cash-flow statement (shown above), the Johnsons made a budget for the year (shown in Table 3-6). They then reconciled various conflicting needs and wants until they found that total annual income was close to the total of planned expenses. Next, they created a revolving savings fund (Table 3-8) in which they were careful to include enough money each month to meet all of their short-term goals. When developing their cash-flow calendar for the year (Table 3-7), they noticed a problem: substantial cash deficits in November and December. Make specific recommendations to the Johnsons on how they could make reductions in their budget estimates. Do not offer suggestions that would alter their new lifestyle drastically, as the couple would reject such ideas.

   The input in the box below will not be graded, but may be reviewed and considered by your instructor.