1. Alex Agnew
PFI 3321
Mini Case Study
Cash FlowStatement
Income
Earned Income
Brooke’s Gross Salary: $42,000
Jacob’s Gross Salary: $86,000
Other Income
Interest & Dividends: $1,350
Total Income: $129,350
Expenses
Fixed Expenses
Mortgage (Including Taxes): $17,000
Auto Loans: $2,200
Homeowners Insurance: $1,250
Auto Insurance/registration: $1,100
Medical Insurance Premiums: $6,200
Life Insurance Premium: $1,600
Emergency Savings Contributions: $1,700
401K Contributions-Jacob: $4,000
401K Contributions-Brooke: $4,000
Roth IRA-Brooke: $6,000

2. IRA Contributions-Jacob: $8,000
Variable Expenses
Food: $6,200
Utilities: $5,200
Medical Expenses: $12,500
Professional Services: $2,300
Gifts: $2,500
Maintenance (auto & home): $3,500
Phone: $1,550
Gas/plane tickets for transportation: $4,200
Clothing: $5,500
Internet: $650
Credit Cards: $6,500
Charitable Contributions: $14,000
Miscellaneous: $8,500
Income Taxes: $32,000
Total Expenses: $158,150
Net WorthStatement
Assets
Cash on Hand: $1,500
Joint Checking Account: $750
Joint Savings Account: $400
Joint Money Market Account: $5,500

3. IRA-Jacob: $27,200
Roth IRA-Brooke: $17,300
401K-Jacob: $320,000
401K-Brooke: $165,000
Real Estate Property: $145,000
Jacob’s Car: $16,500
Brooke’s Car: $22,000
Boat: $30,000
Motorcycles: $12,000
Personal Property: $15,000
House: $200,000
Total Assets: $978,150
Liabilities
Credit Card A (For Groceries): $4,800
Credit Card B (For Cloths): $2,500
Credit Card C (For Travel): $5,400
Credit Card D (For Misc. Items): $1,900
Medical Bills: $1,100
Auto Loans: $2,000
Mortgage: $90,000
Total Liabilities: $107,700
Net Worth: $870,450

4. Ratios
1. Basic Liquidity Ratio = Monetary Assets / Monthly Expenses
= $8,150 / $13,179.17
= .62
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 you may have insufficient monetary assets,
unable to support yourself 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
= $978,150 / $101,700
= 9.62
The asset-to-debt ratio compares total assets with total liabilities. It provides you with a
broad measure of your financial liquidity. This ratio measures solvency and ability to pay debts.
A high ratio is desirable. Based on the calculations, you have ample assets compared with your
debts because you own items worth more than nine times what you owe.
3. Debt service-to-income ratio = Annual debt repayments / Gross income
= $19,200 / $129,350
= .15

5. 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. Your percentage of 15% indicates that your gross income is adequate
to make debt repayments, including housing costs, and implies that you usually have some
flexibility in budgeting for other expenses.
4. 4. Debt Payments-to-Disposable income ratio = Monthly nonmortgage debt repayments
/ Monthly disposable income
= $183.3 / $8,112.5
= .0225
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,
your debt payments to disposable income ratio of 2.25% great! This shows that you would be
secure if a disruption in income occurred because you could continue to make your debt
payments.
5. Investment Assets-to-Total Assets = Investment assets / total assets
= $674,500 / $978,150
= .69
The investment asset-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 as related to retirement. Considering

6. that a ratio of 50 percent or higher is desirable, investment asset to total assets ratio of .69 is
outstanding! This shows that almost 70% of your total assets is made up of investment assets.
Debts
When a person has multiple debts, and has trouble always making their debt payments, it’s
important to figure out which debts to repay, understand the likely consequences if you can not
pay certain debts, and deciding whether or not to file bankruptcy. In order to get started with a
longer-term strategy, you will need to take a look at your overall debt picture. The following is a
list of your current debts.
Credit Card A (For Groceries): $4,800 (15%)
Credit Card B (For Cloths): $2,500 (19%)
Credit Card C (For Travel): $5,400 (10%)
Credit Card D (For Misc. Items): $1,900 (17%)
Medical Bills: $1,100
Auto Loans: $2,000
Mortgage: $90,000
Collateral is a property that a creditor has the right to take if you do not pay a particular
debt. Creditors who have collateral are usually referred to as secured while those who don’t are
called unsecured. If a debt is secure the creditor can take the collateral from you if you don’t
pay for a period of time. You also need to consider interest rates when determining which
debts to pay off first. Paying off debts in order of interest rate will reduce unnecessary interest
charges. The following list is how I suggest you prioritize your debts.

7. 1. Mortgage (Secured) – Make your mortgage payments first to avoid losing your home.
2. Auto Loans (secured) – Make your auto loan payments to avoid losing your car;
especially if you rely on it for transportation to work.
3. Credit Card B
4. Credit Card D
5. Credit Card B
6. Credit Card C
7. Medical Bills
After reviewing your financial information the first thing that concerns me is your low basic
liquidity ratio. I would like to see a higher ratio here to give you cushion and allow you to pay
your expenses with your monetary assets if your income were to cease. Continue to save for
your emergency fund and pay off your debts. Because you have had expenses exceed income,
it’s important to know a few rules about which debts to pay first.
You should always pay family necessities first. This includes food and unavoidable medical
expenses if your medical provider requires pre-payment. Next, as discussed earlier, pay your
housing related bills to avoid loss of your home. Pay the minimum required to keep essential
utility services. It’s also important to note that debt collection efforts should never move up a
deb’s priority. As far as credit cards go, the less you use credit, the faster you can alleviate your
credit card debt. Avoid only making minimum payments on your credit cards and do not use
credit cards to pay for necessities. Consider using a pre-paid card or a debit card to avoid
racking up more debt. While your expenses exceed your income you may need to cut expenses.

8. There are multiple ways to do this including: real estate tax reductions, utility conservation
measures, reduce your telephone expenses, re-evaluate your homeowner’s insurance needs,
cancel unnecessary private mortgage insurance, re-evaluate your other insurance needs,
religious expenses and charitable contributions, sliding scale community services, and
unnecessary payroll deductions. Considering your particularly low credit score as well as your
current debt, I think your best option for purchasing a new car is to save a lump sum of money
first so you can have a small auto loan if any loan at all. I suggest that you wait until you have
some of your current debts paid off such as your current auto loan and credit card debts. I
highly advise against adding more debt until you have alleviated some of these other debts and
built up more monetary assets.
There are many things to consider when thinking about weather or not you should file
bankruptcy. When you file bankruptcy, most of your unsecured debts will be “discharged.” This
means that your legal obligation to pay those debts will end even if you can’t pay. On the other
hand, despite your bankruptcy, a secured creditor usually will eventually be able to seize its
collateral unless you make a plan to pay that debt. Probably the most consequential effect of
filing for bankruptcy is that your credit score and credit report will fall drastically. Furthermore,
according to your asset to debt ratio, your financial situation it not bad enough to file for
bankruptcy because you have far more assets than liabilities. Considering this, as well as your
want to make larger purchases in the future ($28,000 car) I suggest that you do not file for
bankruptcy. Continue to pay your debts and lower your expenses and you will soon lower your
debt and increase your monetary assets enough that your income will be higher than your
expenses. Overall, you are in good shape financially but your budget won’t allow for some of

9. your desired expenses. Keep working hard and be diligent about cutting some expenses until
you have your debt more under control.
Part II
From a financial counseling perspective, I think the Taylors are a particularly interesting
case. They disagree on several issues that are causing them stress financially. First, they both
disagree on when Brooke should retire. They would like to but a new car that cost $28,000 but
they are currently in debt and have a credit score of 550. Brooke feels they need to file
bankruptcy, but Jacob doesn’t want to. Lastly, Jacob is unhappy with Brooke’s spending habits
and feels she needs to do something about the credit cards.
The first thing I would make sure the Taylors understand is the process on financial
counseling. They need to know that they cannot just be handed a budget to follow and expect
their financial trouble to go away. I need to discuss things with them such as facilitating
communications skills, practical problem solving approaches, and decision-making techniques
found to be effective in personal and professional interactions. They need to understand that
the purpose of counseling is to influence and motivate clients toward acceptable goals. The
next thing I would communicate with the Taylors is the actual financial planning model. I would
use the six-stage financial planning model. This begins with gathering data. Accurate, pertinent
data is the essence of financial planning. We have already covered a portion of this step. The
second step is establishing client objectives. I would help the Taylors establish realistic
objectives that are an outgrown of the client’s experiential maps and stated goals. We may

10. have to alter some of their goals such as wanting to buy a new $28,00 car. The third step is
processing and analyzing information. The fourth step is recommending a total plan. This step
can be tough. I will have to take precaution that most viable alternatives have been explored;
that proposed choices are indeed appropriate to the client’s constraints and goals; and that all
information concerning the client’s needs and goals have been explored. The goal of this stage
is to bring the Taylors experiential map together with a financial plan; a plan designed
specifically to meet their needs and developed to achieve the Taylors objectives. The fifth step
is to implement the plan. And lastly, step six is to monitor the plan and make changes where
necessary.
The financial counseling strategy one uses is completely dependent on their clients. In
the case of the Taylors, they are having issues and have different viewpoints on what they
should do financially (weather or not to file bankruptcy and usage of credit cards). Because this
is the case, I would use an open-ended tactic when communicating to the Taylors about their
financial issues. For example, when confronting Brooke about how she feels they need to file
bankruptcy, I would approach it using an open-ended tactic by saying, “So you feel you and
your husband need to file bankruptcy? Lets talk about that for a moment.” This allows Brooke
to discuss what has led her to the statement “I think we need to file bankruptcy,” and
establishes a relationship in which trust can be developed between the Taylors and myself.
Another point I want to emphasize when meeting with the Taylors is specifying objectives.
When specifying objectives, I would describe an intended outcome and not be a description or
summary of content or process. A characteristic of a usefully stated objective is that it is stated
in behavioral of performance terms. It will specify what the Taylors would do as a result of

11. counseling. I think this would be the best option when dealing with the Taylors. I think it will be
particularly useful in helping Brooke manage her credit card spending by giving her an objective
in which she will have to cut spending in certain areas to meet this objective.
A problem that I may encounter is Jacob and Brooke’s unwillingness to cut expenses
enough to meet a budget and improve their debt. First, Brooke may be unable to control her
spending habits. Furthermore, they both want a new car ($28,000) that would add to their debt
total. They already have a dangerously low basic liquidity ratio. The addition of a $28,000 car
would raise their monthly expenses and reduce the amount of income they could contribute to
monetary assets. This means that if the Taylors had an unexpected loss of income, they would
be unable to make payments on their monthly expenses. I need to help the Taylors understand
how to reduce some expenses and alleviate their debt so they can afford more luxuries and be
financially stable.