Question

Introduction to Personal Finance Unit 2 Project Learning Goals: • Understand how financial statements & ratios and basic tax fundamentals impact the financial planning process. Rodney and Shania Cashman 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 through the use of Ratios. 3. Provide any recommendations if necessary. Rodney's Salary Shania's Salary Home value Mortgage payment 2018 Lexus fair market value Checking Account balance Groceries Investment Account balance that holds mutual funds) 2018 Lexus loan payment Past Due Utility Bill Utilities Credit Card balance Entertainment 2018 Lexus loan balance Stamp Collection Gas Mortgage balance Credit Card payments Jewelry Savings set aside each year towards a vacation Tax Refund Money Market Account balance 401(k) Account balance Cash Auto Insurance payments 35,000 40,000 180,000 12,000 38,000 900 6,000 500 6,000 200 1,200 1,000 2,400 25,000 1,900 3.800 160,000 2,400 100 600 1,000 2,000 500 100 960
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Answer 1

CASH INFLOWS
Income	Annual Amount
Rodney's Salary	35,000
Shania's salary	40,000
Tax Refund	1,000
Total Cash inflows	76,000
CASH OUTFLOWS
Living Expenses
Fixed Expenses	Annual Amount
Mortgage payment	12,000
2018 Lexus Loan Payment	6,000
Auto Insurance payments	960
Total Fixed Expenses	18,960
Variale Expenses
Groceries	6,000
Past Due utility Bill	200
Utilities	1,200
Credit Card payments	2,400
Entertainment	2,400
Stamp collection	1,900
Gas	3,800
Total Variable Expenses	17,900
Total Living Expenses	36,860
NET UNIDENTIFIED CASHFLOW	39,140

Assets
	Monetary Assets	Amount		Current Liabilities	Amount
	Checking Account Balance	900
	Cash	100		Credit Card balance	1000
	Total Monetary Assets	1,000		Total Current Liabilities	1000
				Long-term Liabilities
	Investment Assets			2018 Lexus Loan Balance	25000
	Investment Account Balance(that holds Mutual funds)	500		Mortgage Balance	160000
	Savings Set aside each year towards vacation	600		Total Non-current Liabilities	185000
	Money Market Account Balance	2,000		Total Liabilities	186000
	Total Investment Assets	3,100
	Retirement Assets			Networth	39140
	401(k) account Balance	500
	Total Retirement Assets	500
	Housing
	Home Value	1,80,000
	Total Housing	1,80,000
	Automobiles and Personal Property
	2018 Lexus fair market value	38,000
	Jewelery	100
	Total Automobiles and Personal Property	38,100
	Total Assets	2,22,700		Total Liabilities and Networth	225140

Area	Calculation	Ratio	Recommended
Living expenses covered Ratio	Monetary Assets/Monthly Living Expenses	1	3 to 6 months
Debt Ratio	Total Liabilities / Total Assets	0.84	Less than 1
Debt Service to Income Ratio	Annual Debt Payments / Gross Annual Income	25%	Less than 36%
Saving Ratio	Annual Savings/ Annual Living Expenses	10%	10% or more
Investment Assets to Total Assets Ratio	(Investment Assets + Retirement Assets)/Total Assets	2%	10% or more

How well Rhodney and shania are managing their finances? Give examples from financial statements and ratios?

They are managing pretty well. If we look at the ratio indicators, except Living expenses covered ratio, they are managing every other ratio very well. All other indicators except, living expenses covered ratio are well within the recommended parameters.

What areas Rhodney and shania should improve ?

They should improve on two aspects - Reduce expenses and increase investments. It is evident from two ratios which are Living expenses covered rato and Investment assets to Total Assets Ratio..!!