jim and jackie are married with three children at home and a mortgage. jims net pay per year is $67,000 and…

jim and jackie are married with three children at home and a mortgage. jims 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.\n\njim 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.\n\nas their financial advisor, what part of jim and jackies financial plan would you encourage them to work on?\na. they should work on their plan for managing income.\nb. they should work on their plan for managing their liquidity.\nc. they should work on their plan for protecting their assets.\nd. they should work on their plan for protecting their income.

jim and jackie are married with three children at home and a mortgage. jims 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.\n\njim 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.\n\nas their financial advisor, what part of jim and jackies financial plan would you encourage them to work on?\na. they should work on their plan for managing income.\nb. they should work on their plan for managing their liquidity.\nc. they should work on their plan for protecting their assets.\nd. they should work on their plan for protecting their income.

Answer

Brief Explanations:

  1. First, calculate Jim's annual disposable income after retirement contribution: 15% of $67,000 is $10,050, so disposable income is $67,000 - $10,050 = $56,950, or ~$4,745.83 monthly.
  2. Calculate total monthly expenses: $2,800 + $2,700 = $5,500. Monthly income is less than expenses, creating a deficit.
  3. Analyze liquidity: They only have $5,000 in savings, which is less than one month of total expenses, so liquidity is weak.
  4. Analyze income protection: Jim is the sole earner, with a $500k policy, but the immediate issue is covering monthly shortfalls and having emergency funds (liquidity) before long-term income protection adjustments.
  5. Income management is partially addressed, but the most pressing gap is having enough liquid funds to cover gaps and emergencies.

Answer:

b. They should work on their plan for managing their liquidity.