Question

John Barton is both excited and amazed. Excited because on graduating from college one year ago at age 22, he landed a good job with a commercial leasing firm and he is enjoying the work. His company has good benefits and has just given him a raise so that in his next (2nd) year of employment he will be earning $55,000 per year.

He is amazed because even with this raise he feels that money is just as scarce as it was when he was a student. The paycheck comes and before he knows it, it is gone again. Certainly, he has many more “things” than he did before: a nice new car, an attractive apartment with some real furniture, and a wide screen television.

Nonetheless, he is still concerned that he has little in savings to handle emergencies (becoming ill, terminated from his job) or life changing events like getting married. John feels that it is time to “get his finances in order” as his father is always saying. He intends to determine his personal Net Worth and to understand where his money comes from and where it goes. He has gathered the following information to help him with this task.

His annual salary is $55,000 and in addition he earns $150 per year in dividends on stock that his grandmother left him in her will. The stock was worth $4,200 when he inherited it. A few days ago, John checked the stock price on the Internet and saw that it is now worth $6,000. He also earns about $10 per year in interest on a savings account. The current balance in the savings account is $1000 and he has $300 in a checking account. Fifteen percent of his check is withheld for income taxes and another 7.65% for employment taxes (these tax rates already consider the 401k pre-tax deduction from income so calculate the taxes using total salary). John must pay $75 per month to obtain health and dental insurance under the company plan. His firm matches money he places in an employee retirement savings plan (401K plan). John has put $1,650 in the plan to date and the company matched it. He intends to continue with this level of contribution in the future. If John leaves the firm prior to five years of service he will not be entitled to the company match. In other words, the money the company has contributed and continues to contribute is not his until he has been with the company for five years. So, the balance showing in his 401k account includes only his contributions.

John purchased a nice car upon graduation (one year ago) for $25,000 and has maintained it carefully. He noticed that similar used cars of the same year are now selling for $13,000. He makes monthly car payments on a $23,000 loan (the amount he originally borrowed), at 5% annual interest over 60 months. Vehicle maintenance expenses run about $50 per month. Gas costs $147 per month (1,500 miles per month, 25 mpg, $2.45 per gallon) and toll road charges are $25 per month. He pays $2,300 per year for vehicle insurance.

His apartment rent is $1,000 per month with natural gas bills of $80 and electricity averaging $70 per month. John carries renter’s insurance to cover loss of goods in the apartment and liability for accidents; it costs $40 per month.

He estimates that he spends $600 per month on food (he eats out a lot), $75 on clothes monthly, and $250 on entertainment each month. He also takes a couple of short vacations through the year that cost in total about $2,000 annually.

His home furnishings were previously purchased for $5,000 and are currently worth about $3,000 (market value). In addition, he has a nice entertainment system that is worth $2,500 and personal items (clothes, etc.) of $1,500, which are both at market value.

In addition to his auto loan, John has additional debt. John currently has a balance on his credit cards of $3,500 and he has been paying, on average, $100 per month on the account. He owes $20,000 on student loans and makes payments of $250 per month.

1. Do cash flow statement

	Monthly	Annual
Income
Salary
Bonuses
Dividends
Capital gains
Interest
Other income
Total Cash Inflow
Expenses
Apartment Rent
Utilities:
Gas
Electricity
Water & Sewer
Home maintenance
Car payments
Car expenses
Maintenance
Gas
Tolls
Credit card/loan payments
Student loan payment
Insurance premiums:
Life
Health
Car
Home
Liability
Income taxes
Employment taxes
Clothing
Child care
Food
Medical expenses
Vacations
Entertainment
Charitable contributions
Personal items
Savings/investment:
Emergency
Retirement Funds
Other payments
Total Cash Outflows
Net Cash Flow

2. Net worth

Assets
Cash and Cash Equivalents
Cash
Checking accounts
Savings accounts
Money market accounts
Certificates of deposit
Total Cash and Cash Equivalents
Investments
Stocks
Bonds
Mutual funds
Other investments
Total Investments
Retirement Funds
IRA's
Employee savings plans (401k)
Total Retirement Funds
Personal Assets
Residence
Collectibles
Automobiles
Home furnishings
Other assets
Total Personal Assets
Total Assets
Liabilities
Charge account balances
Personal loans
Student loans
Auto loans
401(k) loans
Home mortgages
Other liabilities
Total Liabilities
Net Worth

3 Amortization Schedule

Principle Balance:
Payment:
Interest
Months:
Payment Number	Payment	Interest	Principal	Principal Balance

Answer 1

Cash flow - Annual
Receipt - Inflow	Rate	Annual earning
2nd year earnings		55000
Dividend income		150
Bank interest		10
Gross earning		55160
Deductions
income tax /tds	15%	8250
Employment tax	7.65%	4207.5
PF deduction	3%	1650
Employer contribution	3%	1650
Total deductions		15757.5
Net inflow (salary + other income)	39403
Asset
Equity stock		4200
cash at savings bank		1000
cash at checking bank		300
car		25000
Furniture		5000
Music system		2500
personal items		1500
Total assets		39500
Liability
Car loan		23000	60 months repayments
interest on loan per annum	5%
Credit card liability		3500	(Repayment monthly $100 per month
Study loan or students loan		20000	(Repayment monthly $250 per month
		46500
Outflow
Vehicle maintenace		50
Gas - vehicle		147
Rent - appartments		1000
natural gas		80
Electricty bill		70
insurnce - Home		60
food		600
Toll		25
loss of goods insurance cover		40
Clothes		75
Entertainment		250
Vacations (2*1000)		2000
health and dental insurance		75
Interest on car loan	5%	1150
Total outflow		5622
Net inflow		33878
Amortizations		Car loan	Credit card	Students loan
Opening balance		23000	3500	20000
interest		1150
Repayment Annual		4600	1200	3000
Closing balance liability		18400	2300	17000