Kyle Reed and Viera Emini, both 30, last month bought their dream house in London, Ontario. The purchase price was $500,000 plus additional fees such as taxes, legal fees, administration fees etc., of $10,000. They paid $110,000 casha gift from their parents---and borrowed a mortgage of $400,000 from the local bank. They find it very difficult to keep up with the monthly mortgage payments of $1,800, and have approached you for advice. The following is a summary of their financial situation:

Cash in chequing account$600

RRSPs14,000

TFSA2,000

Five year GIC maturing this month5,000

Mutual Fund31,000

Two cars20,000

Personal Assets20,000

Viera inherited the mutual fund a few years ago when her aunt died.It has paid dividends, but is worth the same as when she inherited it.Both work for small companies near their home and they have a combined take home pay of $120,000. They do not have any pension plans or medical benefits.They plan to have children in the next few years.Their marginal tax rate is about 35%.They have outstanding overdue balances on three credit cards:Alterna Visa ($21,000 @18% interest); Canadian Tire Master Card ($11,000 @16% interest); and a department store charge card ($4,000 @24% interest). They have been paying $400 on the Visa card per month for the past year, but have not paid anything on the others. On the fourth card, Tottery Domino Bank Visa (21% interest rate), which they are using for current spending, they owe only the current month's balance of $4,500.On top of the credit cards, there is still a car loan with an outstanding balance of $5,500 @6% interest, and monthly payment of $450. They spend freely, and live from one pay cheque to another. They find saving money very difficult. They can borrow money at 6% interest for investment purposes.

Required:

a.Create their balance sheet.

b. Give eight specific recommendations on personal financial management. Support your recommendation with calculations and/or explanations.The point of this question, and indeed of this course, is to use the numerical information to improve your client's financial situation.The mechanical questions are a means to this end.