Please consider the Smith family:

John and Jane Smith are both 25 years old. They have a three year old daughter, and don't plan on having any more children. Their combined after-tax income is currently $70,000/year.

They recently purchased a 2,800 square-foot, five bedroom house for $350,000. The annual cost of the mortgage payments, homeowners insurance, property taxes, expected maintenance, utilities for a large house, and expected updating and furnishing over time is an average of $31,000/year.

They have two brand new cars, a Honda Accord EX and a Honda Odyssey EX minivan. The new cars, plus required full-coverage insurance on them, costs $13,000/year.

They have $14,000 in credit card debt at high interest, 14%.

On the assets side, they have $15,000 invested in Pep Boys stock, because John was always impressed with the service and well-run stores.

John has $17,000 in his company's 401k, all invested in his company's stock. Jane has $13,000 in her company's 401k, all invested in her company's stock.

John can get into a well-respected master's degree program in an in-demand and lucrative profession, and he's researched this and found that it will likely double his lifetime earnings. Perhaps more importantly, it will increase his job security greatly, as well as his job enjoyment. But, for the two years it will take to complete the program the family's income will be cut in half. The tuition for the masters program can be paid for with federal government student loans that have income-based repayment.

What mistakes are the Smith's making? What personal finance advice would you give them? Be specific, and utilize what you've learned from the material in this course.