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Michael and Mary Gordon FamilyMichael and Mary Gordon are developing a financial plan to accomplish their goals and objectives. They have great aspirations for the future, however are concerned about their current financial situation. Assume todays date is January 1, 2017

Personal Background and Information

Michael Gordon (Age 32): Michael is a Vice President of business development at Cornerstone,LLC,a company that helps firms with their digital presence. He has been employed theresince its founding,8 yearsago. The company faces heavy competition and itsprofitability has been erratic. His job however, is fairly secure.His annual salary is $85,000.He is entitled to a performancebonus of 20-30% of his salary.Owing to industry conditions andpoor company profitability, no bonus was paid for the last two years.He is in good health with no history of illness and has never smoked.

Mary Gordon (Age 30): Up until Sam was born, Mary was a web designer at a digital design company. She is uncertain when she will return to work.She is in good health with no history of illness andhas never smoked.

The Gordons: Michael and Mary have been married for 7 years. They have two children, Max and Sam. Michaels mother, Carol lives with the Gordons.They have a nocriminalrecord and have a clean financial history.

Family

Max is 6 years old and is in 1stgrade. He goes to a public school near where the Gordons live. He has shown a strong interest in music and his parents are considering enrolling him formusic lessons.

Sam is 4 years old. She attends pre-school.

Carol, 68 years, is Michaels mother. She had a heart attack two years ago, and has been living with the Gordons since she left the hospital. She is retired and uses income from her investmentsand social security incometo meet her living expenses. She did not qualify as a dependent of the Gordons(For Tax purposes)in 2016. She is concerned that her investments may not perform well in the future and Michael and Mary may have to providefinancial support.

John and Jessica Paulson are Marys parents. They are in good health and have offeredto help pay for Max and Sams tuition through the eighth grade,if required. They are retired,financially secureand travel often. Mary is their only child.

Other Financial Details

Michael and Mary have FICO Scores of 710 each.

They expect their investment portfolio to earn 8% over the long term

They file their taxes Married Filing Jointly.

They take the standard deduction, have 4 exemptions and have child tax credit for each of their two children.

Michael has a 401 (K) plan at work.

His company matches his contributions up to 3% of his salary.

STATEMENT OF CASH FLOW (2017 Expected)

Michael's Salary$ 85,000

Investment IncomeInterest $500

Other Income $600

Total Investment Income $1,100

TOTAL INCOME $86,1001

Pre Tax Contributions

401(K) Contributions$4,800

Health insurance premiums$1,200

TOTAL PRE-TAX REDUCTIONS $6,0002

Taxes

Federal$7,025

State$1,250

TOTAL TAXES$ 8,2753

Living ExpensesRent $24000

Food & Outside Meals $12500

Clothing $4500

Child Care $2500

Entertainment & Travel $7650

Utilities & Phone $3600

Auto Maintenance $1500

Church Contributions $500

TOTAL LIVING EXPENSES $56,750

TUITION & EDUCATION $12,500

Other payments

Car Payment (Loan and Insurance) $4,400

TOTAL OUTFLOW $87,925

NET CASH FLOW($1,825)

STATEMENT OF FINANCIAL POSITION (Jan 1, 2017)

ASSETS

Joint Checking account $1,500

Joint Savings account$1,000

TOTAL LIQUID ASSETS $2,500

Section 401 (K) Vested Plan*$43,000

Certificates of deposits (CDs)**$25,000

TOTALINVESTMENTS $68,000

Automobile $15,000

Jewelry $13,500

Furniture/Household $60,000

OTHER PERSONAL ASSETS $88,500

TOTAL ASSETS $159,000

LIABILITIES & NET WORTH

Credit Cards***$5,000

Car Loan $9,000

TOTAL LIABILITIES $14,000

GORDON FAMILY NETWORTH $145,000

TOTAL LIABILITIES & NET WORTH $159,000

*Michaels 401 (K) is 100% invested in the stock of his company,Cornerstone, LLC.

**CDs are earning 2% per year and are for 12 months ending October 2018. They will lose interest earned if they redeem early

***Credit Card APR: 28%. Credit Limit $5000

QUESTIONS: CREDIT

a)Are the Gordons helping or hurting their credit score? (Use the information provided in the case)

b)Recommend ways they can alter their expenses, cash flow and balance sheet to optimize their finances using the opportunity cost of various options.

c)The Gordons are planning on replacing their credit card. Evaluate two credit cards available in the marketand suggest one that they should consider. Please use the template in Chapter 5 of your book.

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