The document provides financial information for Samuel and Maria Anderson, including their assets, liabilities, income, expenses, and financial goals. It calculates key financial ratios for the Andersons, such as their basic liquidity ratio, asset-to-debt ratio, debt service-to-income ratio, and debt payments-to-disposable income ratio. It then creates a monthly budget and restates their goals in the SMART format with specific savings amounts and timelines. The conclusion recommends refinancing their mortgage at a lower rate, downgrading their cars to reduce expenses, paying off high-interest credit card debt, and delaying charitable contributions until improving their financial position.

1. 1
Alex Agnew
PFI 3341
Mini Case Study
Introduction
Samuel and Maria Anderson live in Lubbock, TX where Samuel works full
time for XYZ Oil and Gas. Maria works part time from home and cares for the
couple’s two young children. For this assignment, I will build and examine the
Anderson’s financial statements, calculate their ratios and explain what they mean,
create a monthly budget they can use that will be in line with reaching their goals,
and discuss turning their goals into smart goals and how to achieve them. The
Anderson’s have compiled the following data to complete the tasks above.
Assets& Liabilities Income & Expenses
Cash onhand
$
200 Homeownersinsurance
$
2,000
Samuel'sCar
$
20,000 Clothing
$
2,100
Real Estate Property
$
100,000 Samuel'sGrossSalary
$
85,000
JointMoneyMarket
Account
$
1,580 Medical Expenses
$
8,000
Medical bills
$
4,200 Internet
$
900
Mortgage
$
140,000 IRA Contributions
$
5,000
JointSavingsAccount
$
3,000
InterestandDividend
Received
$
700
Samuel's401k
$
37,650 Utilities
$
4,000
Personal Property
$
13,500 Food
$
5,200
Creditcard debt
$
13,351 Phone
$
2,400
Autoloans $ EmergencySavings $

2. 2
15,263 (contribution) 1,800
JointCheckingAccount
$
1,600 Income Taxes
$
25,691
House
$
165,000
Maria's Part Time Gross
Salary
$
26,000
Maria's Traditional IRA
$
9,000 Gas for Transportation
$
1,800
Maria's Car
$
25,000 ProfessionalServices
$
1,500
Mortgage (includingtaxes)
$
15,600
AutoLoans
$
9,000
Maintenance (autoand
home)
$
4,000
Charitable Contributions
$
11,170
Medical Insurance Premiums
$
4,800
Life Insurance premium
$
1,500
Gifts
$
3,000
Autoinsurance/registration
$
1,750
CreditCard Payment
$
1,250
Miscellaneous
$
1,250
The Anderson’s believe the following assumptions:
 Inflation will be 3.5%.
 Their mortgage is a 30 year loan at an interest rate of 6.5%.
 Their investments are earning a rate of return of 7% a year.
 The savings and checking accounts each earn 0.05% a year.
 The Money Market earns 0.75% a year.

3. 3
Cash FlowStatement
Income
Earned Income
Samuel’s Gross Salary: $85,000
Maria’s Gross Salary: $26,000
Other Income
Interest and other Dividends received: $700
Total Income: $111,700
Expenses
Fixed Expenses
Mortgage (including taxes): $15,600
Auto Loans: $9,000
Homeowners Insurance: $2,000
Medical Insurance Premiums: $4,800
Life Insurance Premium: $1,500
Auto Insurance/registration: $1,750
Income Taxes: $25,691
IRA Contributions: $5,000
Emergency Savings (contribution) $1,800
Variable expenses
Food: $5,200
Utilities: $4,000
Medical Expenses: $8,000
Clothing: $2,100
Internet: $900
Phone: $2,400
Gas for transportation: $1,800
Professional Services: $1,500
Maintenance (auto & home): $4,000
Charitable Contributions: $11,170
Gifts: $3,000
Credit Card Payments: $1,250
Miscellaneous: $1,250
Total Expenses: $113,711
Surplus (Deficit) ($2,011)

4. 4
New WorthStatement
Assets:
Cash on hand: $200
Joint Checking Account: $1,600
Joint Savings Account: $3,000
Joint Money Market Account: $1,580
Samuel’s 401K: $37,650
Maria’s Traditional IRA: $9,000
Real Estate Property: $100,000
Samuel’s Car: $20,000
Maria’s Car: $25,000
Personal Property: $13,500
House: $165,000
Total Assets: $376,530
Liabilities
Credit Card Debt: $13,351
Medical Bills: $4,200
Auto Loans: $15,263
Mortgage: $140,000
Total Liabilities: $172,814
Net Worth: $203,716

5. 5
Ratios
1. Basic Liquidity Ratio = Monetary Assets / Monthly Expenses
= 6,380 / 9,475
= .673
The basic liquidity ratio is used to determine the number of months that you
could continue to meet your expenses using only your monetary assets if all income
ceases. A high ratio is desirable. This financial ratio suggests that the Andersons may
have insufficient monetary assets, unable to support them for even a month. It is
recommended that people have somewhere between three to six months expense in
emergency cash reserves.
2. Asset-to-Debt Ratio = Total Assets / Total Debt
= 376,530 / 172,814
= 2.18
The asset to debt ratio compares total assets with total liabilities. This ratio
measures solvency and ability to pay debts. A high ratio is desirable. The
calculations based on the figures in the Anderson’s balance sheet show that the
couple has ample assets compared with their debts because they own items worth
more than two times what they owe.
3. Debt Service-to-Income Ratio = Annual debt repayments / Gross income
= 24,600 / 111,700
= .22

6. 6
The debt service to income ratio provides a view of your total debt burden by
comparing the dollars spent on gross annual debt repayments with gross annual
income. A ratio of .36 or less is desirable. The Anderson’s percentage of 22%
indicates that their gross income is adequate to make debt repayments, including
housing costs, and implies that they usually have some flexibility in budgeting for
other expenses.
4. Debt Payments-to-Disposable income ratio = Monthly nonmortgage debt
repayments / Monthly disposable income
=750 / 6767.42
= .11
The debt payment to disposable income ratio divides monthly disposable
personal income into monthly debt repayments. Considering a ratio of 14 percent or
less is desirable, the Anderson’s debt payments to disposable income ratio of 11%
good. This shows that the Anderson’s would be secure if a disruption in income
occurred because they could probably continue to make their debt payments.
5. Investment Assets-to-Total Assets = Investment assets / total assets
= 146,650 / 376,530
= .39
The investment assets to total assets ratio compares the value of your
investment assets with your total assets. This ratio reveals how well an individual or
family is advancing toward their financial goals for capital accumulation, especially

7. 7
as related to retirement. Considering that a ratio of 11% to 30% is desirable for
people in their 30s, the Anderson’s ratio of 39% is good considering that they are
both 30 years old.
Monthly Budget
Income
Samuel’s Gross Salary: $7,083
Maria’s Gross Salary: $2,167
Interest and Dividends: $58
Total Income: $9,308
Expenses
Fixed Expenses
Mortgage (including taxes): $1,300
Auto Loans: $750
Homeowners Insurance: $167
Medical Insurance Premiums: $400
Life Insurance Premium: $125
Auto Insurance/registration: $146
Income Taxes: $2,141
IRA Contributions: $242
Emergency Savings (contribution): $1,513
Vacation account: $194.77
Variable expenses
Food: $320
Utilities: $333
Medical Expenses: $667
Clothing: $75
Internet: $75
Phone: $200
Gas for transportation: $150
Professional Services: $0
Maintenance (auto & home): $333
Charitable Contributions: $0
Gifts: $90.23
Credit Card Payments: $104
Miscellaneous: $0

8. 8
Goals
When you set goals for yourself, it’s best to make sure your goals follow the
acronym for “S.M.A.R.T” goals. This assures that your goals are specific, measurable,
achievable, realistic, and time-bound. Each of these goals needs to be re-examined
and altered into S.M.A.R.T goals.
1) We want to have 9 months worth of income in an emergency fund within 3 years.
 We want to have income in an emergency fund to cover 9 months expenses
so we could live comfortably if a loss of income were to occur. We want to
have this income saved for within 3 years. We will do this by placing $1,513
each month into an investment account earning 7% interest. This will allow
us to save $60,407.5 in 3 years.
Samuel’s Gross Salary: $85,000
Samuel’s Gross Salary in 3 years (15% increase) $97,750
Maria’s Gross Salary: $26,000
Anderson’s total gross salary: $123,750
Anderson’s 9 months income (in 3 years) $92,812.50 = 123,750/12*9
For an emergency fund, it’s recommended you only save for necessary expenses.
Not to the extent that you don’t pay your debts or luxuries such as utilities, phone,
and Internet, because you want to still live comfortably if a sudden absence of
income occurs. Therefore, our desired 9-month income emergency savings excludes

9. 9
the following expenditures: IRA contribution, clothing, professional services,
charitable contributions, gifts, miscellaneous expenses, the previous emergency
funds contribution, and the amount already built up in emergency savings. Once we
subtract these, our 9-month emergency savings goal is: $60,407.5
Using our investment account earning 7%, the calculation is as follows:
FV=-60,407.5, N=36, I/Y=.583(7/12), CPT>PMT: $1,513 / month
2) We want to take a family vacation to Disneyland for one week in a year and a half.
We anticipate this to cost about $3,500.
 We want to take a family vacation to Disneyland for one week in a year and a
half. We anticipate this to cost about $3,500. We will reach this goal by
investing $194.77 each month into our investment account over the next 18
months.
Anticipated vacation cost: $3,500
Anticipated vacation cost in 1-½ years (3.5% inflation)
PV=-3,500, I/Y=3.5, N=1.5, CPT>FV $3,685.3
We can invest each month at 7% to meet this goal
FV=-3,685.3, N=18, I/Y=.058(7/12), CPT>PMT $194.77 / month
3) We want to give 15% of our income to a charity each year.

10. 10
 We want to give 15% of our income to a charity each year once we have paid
off our auto loans and re-financed our house into more affordable payments
in 2 years. When we begin contributing this money to charity, we will invest
$1,352 each month into an investment account earning 7% interest. This will
allow us to accumulate $16,755 (15%) over the course of 12 months.
Anderson’s 15% gross salary: $16,755
If we save over the course of the year, we can invest each month at 7%
FV=-16,755, N=12, I/Y=.058(7/12), CPT>PMT $1,352 / month
4) We want to start saving $3,000 for retirement in an IRA.
 We want to save $3,000 for retirement in an IRA in one year by saving
$242.08 each month in an investment account earning 7% interest.
FV=-3,000, N=12, I/Y=.058(7/12), CPT>PMT $242.08 / month
Conclusion
After reviewing the data, in order to attain your goals, you have to cut
monthly variable expenses such as food, clothing, professional services, charitable
contributions, gifts, and miscellaneous expenses. In order for you to meet your goals
without cutting expenses such as these, I suggest you first re-finance your house.
Your interest rate of 6.5% on your mortgage is much higher than it should be. This is

11. 11
just accumulating more unnecessary debt, which takes away from other areas you
would rather have your money spent. Try to find a 30-year mortgage that is no
higher than 3.5% interest. This will lower your monthly payments. Furthermore,
you could drastically lower your monthly expenditures if you downgraded on each
of your cars. This could free up $750 in your monthly budget. For the time being, I
suggest that you not expense for charitable contributions. Your budget does not
currently allow the room for this expense, but once you have less debt and have
saved up money in your emergency fund increasing your monetary assets, you will
have plenty of room to contribute to this expense. The last suggestion I have is that
you pay your credit card debt off soon, paying the highest interest rates first. This
will allow you to alleviate the debt quicker and prevent unnecessary interest
charges.