Balance Sheet Construction

Your client, Bob Jones called and said that as part of his homework from your last meeting he had compiled a list of assets and other financial information and would email it in. Later that day, you received his information. His assets included a house worth $300,000, around $350,000 in marketable securities, a Roth IRA with a $42,000, two cars worth $40,000 with loans against them of $15,000, jewelry worth $5,000, artwork valued at $5,000, and a 401K plan at work that his wife has with a balance of $78,000. Their household furniture and furnishings are worth about $25,000. Bob and his wife also have a money market account at the local bank with a balance of $1,500 and a checking account worth $3,200. Bob has earned a bonus at work that has not yet been paid net of taxes of $4,200. The have current credit card balances of $12,000 and a mortgage owed of $180,000.

Application Tasks and Questions:

Construct a complete balance sheet for the Joneses.

How does it look to you?

What would you explain to Bob and his wife about it?

------------------------------

Savings and Cash Flow Statement

Bob also provided the following information about the household cash flow (annual basis). The listing included:

Revenues

Salary $100,000

Investment income 8,000

Outflows

Home related $20,000 (includes mortgage interest/principal payments, property taxes, home upkeep & insurance)

Food 5,000

Clothing 8,000

Health Care 6,000

Transportation 2,000

Personal 3,000

Recreation 4,000

Cars, Entertainment 9,000

Hobby 1,000

Gifts/Charitable Giving 2,000

Insurances 6,000

Taxes 26,000

Bob said to assume that his salary will rise 6% per year and investment income is 11% a year. His expenses should rise 3 percent per year except for medical, which will grow at a rate of 6% yearly and taxes, which will grow at 7% per year. Bob wanted to ask you as part of this process about ways to help them save. He further told you that he knew his wife, Sarah, was secretly putting away put of her household money into an account in her own name.

Application Tasks and Questions:

Construct a cash flow statement for this year and one for two years from now.

What observations can you make about their expenditures?

What ideas, methods, etc., do you have to help them save?