Salary $85,000

Investment Income

Interest $500

Other income $600

Total investment income $1,100

Total income $86,100

Pre tax contributions

401(k) contributions $4,800

Health insurance premiums $1,200

Total pre-tax reductions $6,000

Taxes

Federal $7,025

State $1,200

Total taxes $8,275

Living expenses:

Rent $24,000

Food & Outside meals $12,500

Clothing $4,500

Child care expenses $2,500

Entertainment and travel $7,650

Utilities and phone $3,600

Auto maintenance $1,500

Church contributions $500

Total living expenses $56,750

Tuition and education $12,500

Other payments

Car payment $3,400

Car insurance $1,000

Credit card payment $600

Student loan payment $2,400

Total: $7,400

Total outflow: $90,925

Net cash flow ($4,825)

Assets:

Joining checking account $1,500

Join savings account $1,000

Total liquid assets: $2,500

Section 401(k) vested plan* $43,000

Certificates of deposits (CDs)** $25,000

Total investments: $68,000

Automobile $15,000

Jewelry $13,500

Furniture/ household $60,000

Other personal accounts $88,500

Total assets: $159,000

Liabilities and net worth

Credit cards *** $5,000

Car loan $9,000

Student loan $35,000

Total liabilities: $49,000

Family net worth: $110,000

Total liabilities and net worth $159,000

*Michaels 401 (K) is 100% invested in the stock of his company, Cornerstone, LLC.

**CDs are earning 2% per year and will mature in 6 months. They will lose interest earned if they redeem early

***Credit Card 1: APR: 28%. Credit Limit $3000. Balance Outstanding: $1000. Credit Card 2: APR 22%. Credit Limit $4000: Balance Outstanding: $4000

a. Calculate the following ratios and state (Yes or No) if they are within prescribed limits using Exhibit 2-6 and Exhibit 7-6 in your book and: 1) Housing costs as a % of gross income 2) Total Debt service as a % of gross income 3) Food as a % of after-tax income 4) Entertainment as a % of after-tax income 5) Clothing as a % of after-tax income

b. Suggest expenditures they can reduce and by how much so that their cash flow statement has a surplus.

c. What is their credit utilization ratio on their credit card? Is it hurting or helping their credit score? Suggest 2 things they can do to improve their credit score (Hint: Please see all the factors that affect FICO score from the textbook- Page 156, Chapter 5 )