Question
The Sampsons realize that the first step toward achieving their financial goals is to create a budget capturing their monthly cash inflows and outflows. Dave
The Sampsons realize that the first step toward achieving their financial goals is to create a budget capturing their monthly cash inflows and outflows. Dave and Sharons combined disposable (after-tax) income is now about $5,000 per month.
Reviewing their bank statement from last month, Dave and Sharon identify the following monthly household payments:
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$1,100 for home expenses (including the mortgage payment, home insurance, and property taxes)
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$100 for Internet
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$200 for electricity and water
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$200 for cellular expenses
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$800 for groceries
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$200 for a health care expenses
The Sampsons also review several credit card bills to estimate their other typical monthly expenses:
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About $300 for clothing
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About $400 for car expenses (insurance, maintenance, and gas)
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About $200 for school expenses
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About $900 for recreation and programs for the children
To determine their net worth, the Sampsons also assess their assets and liabilities, which include the following:
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$2,000 in their checking account
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Home valued at $150,000
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Furniture worth about $3,000
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Sharons car, which needs to be replaced soon, is worth about $1,000; Daves car is worth approximately $8,000
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They owe $130,000 on their home mortgage
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Using the information in the case, prepare a personal cash flow statement for the Sampsons.
Personal Cash Flow Statement
Cash Inflows
This Month
Disposable income Total Cash Inflows Cash Outflows Mortgage, home insurance and property taxes Internet Electricity and water Cellular Groceries Health care insurance and expenses Clothing Car expenses (insurance, maintenance, and gas) School expenses Recreation Credit card minimum payments Other Total Cash Outflows Net Cash Flows -
The Sampsons hope to have net cash flows of $1,000 per month so that they can add $1,000 per month to their savings. Based on their personal cash flow statement for last month, were the Sampsons able to meet their goal of saving $1,000? If not, how do you recommend that they revise their personal cash flow statement to achieve their savings goals? Is there any particular cash outflow which seems unusually large that could possibly be reduced?
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Prepare a personal balance sheet for the Sampsons.
Personal Balance Sheet Liquid Assets Cash Checking account Savings account Total liquid assets Household Assets Home Car Furniture Total household assets Investment Assets Stocks Bonds Mutual funds Total investment assets Total Assets Liabilities and Net Worth Current Liabilities Loans Credit card balance Total current liabilities Long-Term Liabilities Mortgage Car loan Total long-term liabilities Total Liabilities Net Worth -
What is the Sampsons net worth? Based on the personal cash flow statement that you prepared in question 1, do you expect that their net worth will increase or decrease in the future? Why?
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