Introduction to Personal Finance Unit 2 Project Learning Goals: Understand how financial statements & ratios and basic tax fundamentals impact the financial planning process. David and Rose Jones heard that you were taking the PFI/PFP 3301 course at Texas Tech University. Due to their limited knowledge in personal finance they are in a desperate need of your help! They want to know how well they are doing financially and how could they improve their situation. Based on information they provided to you: 1. Construct their Balance Sheet and their Cash Flow Statement. 2. Calculate their financial well-being using the financial ratios. 3. Provide any recommendations if necessary. S S S S S David's Salary Rose's Salary Home value Mortgage payment Car' fair market value Checking Account balance Groceries Investment Account balance (that holds mutual funds) Car Loan Payment Past Due Utility Bill Utilities 75,000 55,000 250,000 15,000 13,500 10,000 4,000 10,000 1,200 S S S S S 200 S Credit Card balance S Entertainment S Car's loan balance S S Stamp Collection Gas S S 1,800 5,000 4,000 2,000 3,500 2,700 120,000 3,300 6,000 500 1,000 5,500 6,000 1,000 S S Mortgage balance Credit Card payments Jewelry Savings set aside each year towards a new car Tax Refund Money Market Account balance 401(k) Account balance Cash Auto Insurance payments S S S S S S 900 Cash Flow Statement (also known as Income Statement) David and Rose Jones January 1 - December 31 CASH INFLOWS Income Annual Amount Total Cash Inflows CASH OUTFLOWS LIVING EXPENSES Fixed Expenses Annual Amount Total Fixed Expenses Variable Expenses Total Variable Expenses Total Living Expenses NET UNIDENTIFIED CASH FLOW David and Rose Jones Balance Sheet as of December 31 ASSETS LIABILITIES & NET WORTH Monetary Assets Amount Current Liabilities Amount Total Current Liabilities Total Monetary Assets Long-Term Liabilities Investment Assets Total Investment Assets Total Noncurrent Liabilities Retirement Assets Total Liabilities Total Retirement Assets Net Worth Housing Total Housing Automobiles and Personal Property Total Automobiles and Personal Property Total Assets Total Liabilities and Net Worth Financial Well-Being Analysis David and Rose Jones RATIOS Area Calculation Ratio Recommended Living Expenses Covered Ratio Monetary Assets / Monthly Living Expenses 3 to 6 months Debt Ratio Total Liabilities / Total Assets less than 1 Debt Service to Income Ratio less than 36% Saving Ratio Annual Debt Payments /Gross Annual Income Annual Savings / Annual Living Expenses (Investment Assets + Retirement Assets)/ Total Assets 10% or more Investment Assets to Total Assets Ratio 10% or more Based on your Financial Well-Being Analysis, how well is David and Rose managing their finances? Explain. Do you see any areas of concern? If yes, provide recommendations on how can they improve. Introduction to Personal Finance Unit 2 Project Learning Goals: Understand how financial statements & ratios and basic tax fundamentals impact the financial planning process. David and Rose Jones heard that you were taking the PFI/PFP 3301 course at Texas Tech University. Due to their limited knowledge in personal finance they are in a desperate need of your help! They want to know how well they are doing financially and how could they improve their situation. Based on information they provided to you: 1. Construct their Balance Sheet and their Cash Flow Statement. 2. Calculate their financial well-being using the financial ratios. 3. Provide any recommendations if necessary. S S S S S David's Salary Rose's Salary Home value Mortgage payment Car' fair market value Checking Account balance Groceries Investment Account balance (that holds mutual funds) Car Loan Payment Past Due Utility Bill Utilities 75,000 55,000 250,000 15,000 13,500 10,000 4,000 10,000 1,200 S S S S S 200 S Credit Card balance S Entertainment S Car's loan balance S S Stamp Collection Gas S S 1,800 5,000 4,000 2,000 3,500 2,700 120,000 3,300 6,000 500 1,000 5,500 6,000 1,000 S S Mortgage balance Credit Card payments Jewelry Savings set aside each year towards a new car Tax Refund Money Market Account balance 401(k) Account balance Cash Auto Insurance payments S S S S S S 900 Cash Flow Statement (also known as Income Statement) David and Rose Jones January 1 - December 31 CASH INFLOWS Income Annual Amount Total Cash Inflows CASH OUTFLOWS LIVING EXPENSES Fixed Expenses Annual Amount Total Fixed Expenses Variable Expenses Total Variable Expenses Total Living Expenses NET UNIDENTIFIED CASH FLOW David and Rose Jones Balance Sheet as of December 31 ASSETS LIABILITIES & NET WORTH Monetary Assets Amount Current Liabilities Amount Total Current Liabilities Total Monetary Assets Long-Term Liabilities Investment Assets Total Investment Assets Total Noncurrent Liabilities Retirement Assets Total Liabilities Total Retirement Assets Net Worth Housing Total Housing Automobiles and Personal Property Total Automobiles and Personal Property Total Assets Total Liabilities and Net Worth Financial Well-Being Analysis David and Rose Jones RATIOS Area Calculation Ratio Recommended Living Expenses Covered Ratio Monetary Assets / Monthly Living Expenses 3 to 6 months Debt Ratio Total Liabilities / Total Assets less than 1 Debt Service to Income Ratio less than 36% Saving Ratio Annual Debt Payments /Gross Annual Income Annual Savings / Annual Living Expenses (Investment Assets + Retirement Assets)/ Total Assets 10% or more Investment Assets to Total Assets Ratio 10% or more Based on your Financial Well-Being Analysis, how well is David and Rose managing their finances? Explain. Do you see any areas of concern? If yes, provide recommendations on how can they improve