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?
Answer
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.
Explanation
Their monthly expenses total $5,500 ($2,800 mortgage plus $2,700 in other expenses), while they have only $5,000 in savings—less than one month of expenses. They should build their liquid emergency savings, typically enough to cover several months of expenses, so they can handle unexpected costs or a disruption in income.
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