Financial planning case 3-1
The Financial Statements of Harry and Belinda Johnson Suggest Budgeting Problems
Harry has worked at a medium-size interior design firm for five years and earns a salary of $4,080 per month. He also receives $3,000 in interest income once a year from a trust fund set up by his deceased father's estate. Belinda earns a salary of $6,400 per month, and she has many job-related benefits including flexible benefits program, life insurance, health insurance, a 401(k) retirement program, workplace financial education, and a credit union. The Johnsons live in an old apartment located approximately halfway between their places of employment. However, their rent will increase by $100 a month in July. Harry drives about ten minutes to his job, and Belinda travels about 15 minutes via public transportation to reach her downtown job. Harry and Belinda's apartment is very nice, but small, and it is furnished primarily with furniture given to them by some of his friends. Soon after getting married, Harry and Belinda decided to begin their financial planning. Fortunately each had taken a college course in personal finance. After initial discussion, they worked together for three evenings to develop the financial statements presented below. Note that the cash flow statement covered the first six months of their marriage.
Balance Sheet for Harry and Belinda Johnson
January 1, 2018
ASSETS
Monetary Assets
Cash on hand
Savings (First Credit Union)
Savings (Far West Savings Bank)
Savings (Homestead credit union)
Checking account (First Credit Union)
Total monetary assets
1,070
1,200
4,000
2,260
2,100
$10,630
Tangible Assets
Automobile (3-year old Toyota)
Personal property
Furniture
Total tangible assets
11,100
2,200
1,600
$14,900
Investment Assets
Harry's retirement account
1,170
Balinds'
arraiint
3.7%
4.1%
13.8%
7.8%
7.2%
36.7%
38.3%
7.6%
5.5%
51.4%
4.0%
Belinda's retirement account
Total investment assets
Total Assets
2,300
$ 3,470
$29,000
7.9%
12.0%
100.0%
LIABILITIES
Short-Term Liabilities
Visa credit card
Target credit card
Dental bill
Total short-term liabilities
Long-Term Liabilities
Vehicle loan (First Credit Union)
Student loan (Belinda)
Total long-term liabilities
Total Liabilities
Net Worth
Total Liabilities and Net Worth
$
390
45
370
805
13,900
8,100
$22,000
$22,805
$ 6,195
$29,000
1.3%
0.2%
1.3%
2.8%
47.9%
27.9%
75.9%
78.6%
21.4%
100.0%
Cash-Flow Statement for Harry and Belinda Johnson July 1-December 31, 2017 (First Six Months of Marriage)
Dollars
Percent
cash Flow
INCOME
Harry's gross income
Belinda's gross income
Interest
Harrv's trust fund (Annual)
Total Income
EXPENDITURES
24,480
38,400
180
3,000
$66,060
99+
37 1%
58.1%
0.3%
4.5%
100.0%
EXPENDITURES
Fixed Expenses
Rent
Health insurance
Life insurance
Renter's insurance
Automobile insurance
Auto loan payments
Student loan payments
Cable TV and Internet
Savings/emergencies
Harry's retirement plan
Belinda's retirement plan
Federal income taxes
State income taxes
Social Security taxes
Automobile registration
Total Fixed Expenses
Variable Expenses
Savings money market fund
Food (home)
Food (out)
Utilities
Cell phones
Auto gas/maintenance/repairs
Doctor's and dentist's bills (non-credit)
Medicines
Clothing and upkeep
9,600
1,800
120
220
600
2,940
1,800
960
960
1,170
2,400
10,200
3,000
4,640
300
40,710
$ 3,000
3,800
1,860
1,320
660
1,150
1,140
350
1,200
Fro
14.5%
2.7%
0.2%
0.3%
0.9%
4.5%
1.5%
1.5%
1.8%
3.6%
15.4%
4.5%
7.0%
0.5%
61.6%
4.5%
5.8%
2.8%
2.0%
1.0%
1.7%
1.7%
0.5%
1.8%
Medicines
Clothing and upkeep
Church and charity
Gifts
Public transportation
Personal allowances
Entertainment
Family holiday trip
Summer vacation
Miscellaneous
Total Variable Expenses
Total Expenses
SURPLUS (DEFICIT)
350
1,200
550
1,070
940
2,400
960
780
1,200
560
$22,940
$63,650
130
0.5%
1.8%
0.8%
1.6%
1.4%
3.6%
1.5%
1.2%
1.8%
0.8%
34.7%
96.3%
0.2%
Using the data from the cash-flow statement developed by Harry and Belinda, calculate the following financial ratios. Round your answers to two decimal places.
Liquidity ratio-
Asset-to-debt ratio-
Debt-to-income ratio-
Debt payments-to-disposable income ratio-
Hint: For disposable income, take into consideration health life insurance, as well as federal, state, and social security taxes.
Investment assets-to-total assets ratio
Investment assets to total assets ratio
