The Smiths are a married couple in their mid-20s. Jane is an associate at a small law firm in downtown Chicago. Her gross salary is $132,000. Her husband John is a human resources associate at a large manufacturing firm in the suburbs. His gross salary is $61,000. Since getting married three years ago, they have been living comfortably. Their income has consistently exceeded their expenses and they have accumulated a net worth of about $55,000, primarily as a result of rising home prices increasing the amount of equity in their downtown condo that they purchased after their wedding. As a result of not having any cash flow issues, Jane and John have done no financial planning beyond making sure there is money left in the bank at the end of the month.

Jane has just learned she is pregnant. They are excited about the prospect of having a child but are concerned about how they will make ends meet if, as they had always talked about, John stays at home to run the household and be the primary caretaker of the child. Jane has no aspirations to stay home and is seen as a rising star within her firm. She hopes to make partner in 7-8 years.

Each time that Jane broaches the topic of financial planning with John, he replies that dont worry, weve always paid the bills on time. Since Johns income would go away completely, Jane is not satisfied with this conclusion. Together, they document their financial situation by using the balance sheet they built one year ago and a listing of expenses incurred during the last year. Since they primarily use a debit card, this information was easily pulled from their bank statements.

1. Create an income and expense statement based on the information given to you for activity over the last year. Remember, since an I&E statement reflects past history, this statement should reflect what was going on with Jane working, not what would happen if she quit.

Expenses incurred in the last year:

Income taxes and government withholdings (social security, medicare)

$34,750.00

Medical expenses	$1,500.00
Gasoline	$4,213.17
Auto Repair	$726.02
Car payment Lexus (toward principal)	$5,445.05
Car payment Lexus (toward interest)	$4,112.48
Groceries	$2,340.14
Dining Out	$4,568.68
Car insurance	$2,506.37
Life insurance	$1,415.00
Medical Insurance	$2,875.00
Homeowners insurance	$728.00
Vacation	$6,415.32
Mortgage payment (toward principal)	$6,847.67
Mortgage payment (toward interest)	$27,274.98
Student loan payment (toward principal)	$8,950.77
Student loan payment (toward interest)	$17,000.98
Condo association fees	$5,875.00
Clothing Jane	$4,250.51
Clothing John	$2,059.21
Big screen TV (one time purchase)	$2,199.99
Cell Phone Service	$1,182.11
Electricity	$1,780.12
Water/sewer	$476.75
Internet service	$285.41
Satellite TV service	$915.22
Entertainment	$6,692.36

Miscellaneous expenses they could not account for (cash withdrawn)

$3,250.00

Contribution to 401(k) Jane	$5,500.00
Contribution to 401(k) John	$1,850.00
Roth IRA Contribution Jane	$3,300.00
Roth IRA Contribution John	$3,850.00