Analyzing your Financial position now and in the future.

Financial Literacy - Project One

Spring, 2016

Due March 24, 2016

You may consider the following questions to be private. I do not wish to violate your sense of privacy. So it is not required that your answers to the following questions be truthful or accurate; that is, they may be made-up. However, this project is much more interesting and useful if you answer truthfully. No one can tell the future, I think, so with regard to the future, make your best guesses. I will not share this information with anybody.

Part One

Review Your Current Financial Situation

1. Describe your living arrangement. (Single, married or other). If married you may show your combined assets and income in the following questions).

2. Do you have children?

3. Do you have an emergency fund or liquid assets of any sort? How much? Where are they (bank or )?

4. Do you have debt of any kind? Car loan, credit card? Student loans? Other? How much, who is the lender?

5. Make your statement of Financial Position for month-end February.

6. Do you have salary/wage income? Gift income (parents etc.)? How much? Do you have other sources of income (loans, gifts, etc.)

7. Try to estimate your cash flow statement for February 2016 or all-year 2015. That is, create one cash flow using the budget you create.

For Parts Two –Four

Imagine yourself in seven years (January 1, 2023. Answer the following questions. (Of course you don’t “know” any of these things. At best they are estimates and at worst they are goals or guesses, but try to be as realistic as possible)

Part Two.

1. Are you now single or married? If single, do you plan to marry later?

2. Do you have dependent children? How many? How old? If not, do you plan to later?

3. What kind of a job do you have? (If married indicate if your spouse works and what they do)

4. How much will you earn (annual)? (If married, indicate your joint income) [do a little work by using web sources such as http://www.bls.gov/oes/current/oes_nat.htm)

5. How much will you pay in income tax? (see note 1)

6. Do you own or rent? (If you own indicate the property cost and your PITI payment, if you rent, indicate you monthly rent) Annual amount? (You can “shop” for a house using Zillow.com, to get an idea)

7. What cars do you own? How expensive is it/are they? If you making monthly payments, how much (in total) are they? For a year? (You can estimate car costs using kbb.com)

8. Do you have any student loan payments? If so, how much are the monthly payments? For a year?

9. Any other loans? Any other monthly payments?

Note 1: We will ignore inflation in this project. That is put all numbers in 2016 dollars.

Part Three

Which of the below types of insurance do you have?

1. Homeowners or Renters? Assume homeowner insurance is .3% of the value of a house, renters insurance is $500)

1. Life insurance (assume annual term and assume cost is $1.00 per $1000 of insurance per year). If married for each.

1. Health Insurance (paid by employer or you) If by you, estimate costs or use $3,500/year single, $5,000/year married, $8,000/year with kids)

1. Auto Insurance estimate costs based on your current rates

1. Umbrella Liability Insurance Estimated cost $500 for $1 million

1. Disability Income Insurance - If you want this you will have to look up some costs on the internet

1. Long-term Care insurance - If you want this you will have to look up some costs on the internet

Part Four

Create a budget/cash flow and Balance Sheet for 2023

1. Follow the pattern of Figure 2.6 on page 39 of your text. Use the figures from above and guess at other amounts. How much are you savings each year?

2. Do you have emergency savings? If so how much? If not what is your plan for getting the “right” amount?

3. Do you have credit card debt? If so, how do you plan to deal with it?

4. Create a cash flow statement for the year showing:

Gross Income

Less Taxes

Disposable Income

List Expenses and subtract to get

Savings Amount for the Year

5. Show your Balance Sheet for 12/31/2023

Part Five

1. At this point, Jan 1 2024, how would you appraise your financial condition?

2. Are you saving for retirement or other goals?

3. What could be done to improve your financial position?

Note 2: Compute estimated income taxes as follows

a) Assume your adjusted gross income is your annual family income.

b) Subtract $4,050 for yourself and for any spouse and children (exemptions)

c) Subtract the standard deduction

i. •$6,300 for single filers and married people filing separate returns.

ii. •$9,300 for head-of-household taxpayers.

iii. •$12,600 for married couples filing jointly and qualifying widows/widowers.

d) Use the table to compute your federal taxes:

look up your federal income taxes: http://www.irs.com/articles/2015-federal-tax-rates-personal-exemptions-and-standard-deductions

e) Multiply your federal taxes computed in d) by 1.1 to get your estimated state and federal taxes combined.

f) Add Social Security/Medicare Taxes - an additional 7.65% of you salary (or 15.3% if you are self employed

Note 3: My evaluation of this project will depend, in part, on how thoroughly you document and explain each of the items provided.