SHORT-TERM GOALS & OBLIGATIONS MINI CASE RYAN AND TIFFANY PIERCE Today is January 1, 2018 THE FAMILY Ryan Pierce (age 47) is an executive with Crush Quota, a closely-held corporation focused on sales training. His salary is $100,000, and he expects raises of 5% per year. Tiffany Pierce (age 50) is an administrative assistant and has a salary of $36,000. She expects raises of 5% per year. They have three children: Dylan (age 16), Colin (age 12), and Madison (age 2). During the day, the children are cared for by their paternal grandmother who lives across the street. Ryan and Tiffany have been married for twenty years. FINANCIAL GOALS & CONCERNS Their primary goal, for this example, is to examine their short-term goals of emergency fund, housing ratio, and debt management. Their other goals and concerns are as follows: 1. They want to provide for their children's college education (5 years each), which is expected to cost $25,000 per year in today's dollars. 2. They want to retire debt free when he is age 65. 3. They initially define adequate retirement income as 80% of preretirement income. 4. They expect the retirement period to be 30 years. 5. They want to review life insurance needs and have wills drafted for both of them. 6. They want to minimize any estate tax liability. 7. They plan to travel extensively during retirement. External Information Economic Information General inflation has averaged 3.0% annually for the last 20 years. General inflation is expected to be 2.5% in the future. Education inflation is expected to be 6% annually. Bank Lending Rates 15-year rate mortgages are 3.50%. 30-year rate mortgages are 3.80%. Any closing costs associated with mortgage refinance are an additional 3% of the amount mortgaged and will be included in the mortgage or paid directly. Bank unsecured loan is 7.5%. Credit card rates are 20%. Auto loan rates range from 0 - 5%. Investment Information They expect to have an 8% rate of return on investment assets. Statement of Income and Expenses Ryan and Tiffany Pierce Statement of Income and Expenses for the Past Year (2017) and Expected (Approximate) For This Year (2018) Cash Inflows Totals Ryans Salary $100,00 Tiffany's Salary $36,000 ML Brokerage Account $3050 Investment Portfolio $4,771 Savings Account $618 Education Fund $1,062 Total Cash Inflows $145,501 Cash Outflows Savings 40 I (k) Plan (Profit Sharing) $15,000 Total Savings $15,000 Taxes Federal Income Taxes Withheld $37,200 State Income Taxes Withheld $4,000 Property Tax Residence $4,936 ND Payroll (Social Security and Medicare) $10,404 Total Taxes $56,540 Debt Payments (Principal & Interest) Principal Residence Mortgage $14,891 ND Auto Loans $18,818 ND Credit Cards $1,300 ND Total Debt Payments $35,009 Living Expenses Utilities $5,000 ND Entertainment $6,500 Church Donations $5,000 ND Clothing $6,000 ND Auto Maintenance $1,243 ND Food $6,300 ND Total Living Expenses $30,043 Insurance Payments HO Insurance Principal Residence $920 ND Health $2,400 ND Auto Premium $2,660 ND Life Insurance #1 $520 ND Fur and Jewelry Endorsement $30 ND Disability $2,667 ND Total Insurance Payments $9,197 Total Cash Outflows $145,789 Net Discretionary Cash Flows ($288) ND = Non-Discretionary cash flows Statement of Financial Position Ryan and Tiffany Pierce Balance Sheet as of 1/1/2018 ASSETS1 LIABILITIES AND NET WORTH Current Assets Current Liabilities2 JT Cash & Checking 6 $7,500 W Credit Cards $4,300 JT Savings7 $15,450 Total Current Liabilities $4,300 Total Current Assets $22,950 Long-Term Liabilities Investment Assets H First Mutual Growth Fund $7,950 JT Principal Residence Mortgage $134,959 W Investment Portfolio $210,000 JT Auto Loans $40,069 H ML Brokerage Account3 $100,000 H Margin Loan 5 $17,522 W Education Fund $22,747 Total Long-Term Liabilities $192,550 H Profit Sharing Plan $80,000 W Profit Sharing Plan $12,000 H IRA4 $9,000 Total Investment Assets $441,697 Total Liabilities $196,850 Personal Use Assets JT Principal Residence $185,000 H Automobile # l $32,000 W Automobile # 2 $21,000 Total Net Worth $552,797 H Boat $10,000 W Furs and Jewelry $10,000 JT Furniture and Household $27,000 Total Personal Use Assets $285,000 Total Assets $749,647 Total Liabilities & Net Worth $749,647 1. Assets are stared at fair market value. 2. Liabilities are stated as principal only as of January 1st before January payments. 3. ML Brokerage Account is stated as gross value, which does not include margin loan of $17,522. 4. IRA is currently invested in CDs at a local bank. 5. Margin loan is for ML Brokerage Account. Interest rate is currently 8% and deducted from account balance. 6.The checking account is a non-interest bearing account. 7.The savings account earns 4% per year. Title Designations: H = Husband (Sole Owner) W = Wife (Sole Owner) Personal Residence - Purchased 1/1/2016 FMV (Current) $185,000 Original Loan $148,000 Term 15 years Interest Rate 5.9% Payment $1,240.93 Remaining Mortgage $134,959 Remaining Term 13 years Taxes on Home $4,936 Homeowners Policy (with endorsements) $920 Auto#1 Auto# 2 Ryan's 2015 Car Tiffany's 2014 Car Purchase Price $40,000 $35,000 Down Payment $0 $10,000 Term 48 months 48 months Interest Rate 7% 8% Monthly Payment $957.85 $610.32 Payments Remaining 33 20 Balance $28,677.07 $11,392.23

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