Reference no: EM132679174

Pierre and Sylvie graduated from college two years ago and after enjoying having two full time incomes and the money to spend on things they could not afford as students, the couple has decided that it is time to get their finances in order and to start saving for a home purchase. They would like to be able to buy a house in 5 years time and have calculated that they need to save $500 per month over the next five years to have the down payment that they will need.

Pierre and Sylvie have combined take-home pay of $5,500 per month. They live in an upscale apartment and pay $1,500 rent. Other monthly expenses include $200 for utilities, $150 for telephone and cell phones, $110 for cable TV and internet, $300 for clothes and dry cleaning, $600 for entertainment, $500 for food, $400 for transportation (gas, maintenance, insurance) and $200 for miscellaneous items. Both Pierre and Sylvie have small cars and make payments of $700 per month in total on the cars. The car loans will both be paid off in 3 years. They also have student loans outstanding which require minimum payments of $400 month. Pierre and Sylvie want to get rid of this obligation more quickly and have been paying $700 per month on those loans. The only other obligations that the couple has are credit cards - each has a card with a $5,000 limit and their total obligation is $8,000. Much of this amount originated in the first year after they graduated when they spent money on furniture for their apartment, a new TV and computer, and clothes that they needed for their new jobs. Pierre and Sylvie have been making the minimum payments required on their cards, which is calculated at 3% of the outstanding balance. They have decided to make fixed future payments based on the current month's minimum payment requirement.

Required:

(a) income and expense statement based on the information provided above. Based on their current income and spending habits, do they have the ability to save $500 per month for the house down payment?

(b) Calculate Pierre and Sylvie's debt-payments to income ratio. According to this ratio, are the couple living within their means?

(c) What suggestions would you make in terms of budget / life style changes that would help Pierre and Sylvie manage their current finances better and help them achieve their goal of buying a house in 5 years time? Make specific reference to items in your income and expense report