Question

Jim and jackie are married with three children at home and a mortgage. jim’s net pay per year is $67,000 and jackie does not have income. their mortgage payment of $2,800 includes insurance on their home. they have additional monthly expenses of $2,700 jim contributes 15% of his earnings to a retirement fund and they have $5,000 in savings There is a $500,000 life insurance policy on jim and a $100,000 policy on jackie. As their financial advisor, what part of jim and jackie’s financial plan would you encourage them to work on?
a. they should work on their plan for managing income.
b. they should work on their plan for managing their liquidity.
c. they should work on their plan for protecting their assets.
d. they should work on their plan for protecting their income.

Answer 1

Answer:

A) they should work on their plan for managing income.

Explanation:

They are currently spending too much money and they should either lower their costs or Jackie will have to find a job:

• Jim's net pay = $67,000
• Jackie's net pay = $0

total monthly expenses = $2,800 (mortgage and extras) + $2,700 other expenses = $5,500 x 12 months = $66,000

Since Jim contributes 15% of his income to a retirement fund, they are currently having a deficit = net income - total expenses = ($67,000 x 85%) - $66,000 = $56,950 - $66,000 = -$9,050

They will not to able to handle this deficit for a long time, so they should decide which expenses to cut (out of the $2,800 additional expenses).