The Sampsons realize that the first step toward achieving their financial goals is to create a budget

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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 and Sharon’s 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:

$1,100 for home expenses (including the mortgage payment, home insurance, and property taxes)

$100 for Internet

$200 for electricity and water

$200 for cellular expenses

$800 for groceries

$200 for a health care expenses

The Sampsons also review several credit card bills to estimate their other typical monthly expenses:

About $300 for clothing

About $400 for car expenses (insurance, maintenance, and gas)

About $200 for school expenses

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:

$2,000 in their checking account

Home valued at $150,000

Furniture worth about $3,000

Sharon’s car, which needs to be replaced soon, is worth about $1,000; Dave’s car is worth approximately $8,000

They owe $130,000 on their home mortgage

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?

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?