Reference no: EM132933817

Socio-demographic Profile of the Family

• Alexander Stephens is currently 32 years old and married to wife, Theresa, who is 30. They have twin two-year old sons, and do not plan to have more children. They live in Corona Del Mar, CA in a 2-bedroom condo that they purchased a few years back for $415,000, putting $40,000 down. They still owe $363,000 on the loan. They currently believe the market value to be $585,000. They are planning to rent out this condo when they can afford to buy a single-family home. Their current mortgage for the condo is $1,850 per month. The property tax bill for this condo is $5160 annually, but they pay it monthly along with their mortgage. They also pay an Association fee of $320 per month. Their home is nicely furnished with furnishings they financed from Pottery Barn, worth about $9,000. Due to the rise in California Fires each year, their home insurance (along with the rest of the state) premiums have increased recently. They used to pay $1400 annually but are now paying $175 every month. There are always repairs needed when owning a home. They might not have something monthly, but annually they usually spend around $800 in basic home repairs and maintenance.
• When they purchased the condo, it was supplied with new appliances. The complex has a pool and BBQ Area, as well as a jacuzzi. So, there is not too much more they need. Their property taxes are paid with their mortgage, making the monthly mortgage payment $2280. They are saving to buy a single-family home in 5 years and anticipate needing about $40,000 as a down payment and are starting to save for this now. Alexander and Theresa know buying a home will bring many expenses such as new appliances (maybe down the road) and moving expenses. They plan to start a savings plan to be able to have more than the $40,000 down payment for extra expenses for their new home but have not figured out how to do that at this point, or if they have extra money to put away for that extra savings. (In your final analysis, be sure to revisit this section to advise them how they can save and earn to reach this goal.)
• They have two cars; one is a 2015 Toyota Tacoma truck that is paid off and probably worth $8,000. It needs new tires in about a year. They will cost $900, so they need to start saving now. Theresa drives a Honda, probably worth $20,000 that they make $350 per month payment on for one more year. Car insurance runs them $1100 per year.
• Alexander is the finance officer of a nearby marketing firm. Theresa is a nurse. Their combined income is close to $147,000 a year. (Alexander makes twice as much as Theresa). Because they are both paid solely W-2 income, their employer takes out the state and FICA tax from each paycheck. The State Tax is roughly 5% and the FICA tax is 7.65% of their annual salary.
• They have good health insurance through their jobs and only pay $400 per month pre-tax to cover both the dependent children for medical and dental. They are all in good health and spend minimal time at doctors and on prescriptions. In a year they may spend $800, with copays and prescriptions. They have minimal life insurance, so they bought an additional 20-year term life plan that only costs $40 per month. They both still owe about $16,000 each in student loans and each are paying $250 per month towards the loans pre-tax, (government aid student loans) and once those are paid off, they will be in a better situation to really start saving for retirement.
• The utilities run them about $280 per month (gas, power, and water total $185, and streaming/internet is $95). They made the decision to "cut the cable" and stream only so that they could save money. They have a modest cell phone package costing about $80 per month. Currently Alexander puts $150/month and Theresa puts $100/month into their company pension 401k plans. Their pension plan balance together totals roughly at $42,000. They would like to put more into their plans once they get their home and their student loans paid off. Their credit union savings account has a current balance of $3750. They are not sure if this is an adequate emergency fund. They make sure to add at least $50/mo. into this fund, but both Alexander and Theresa feel they need more in this fund. They are hoping to figure out where they should be putting extra funds, and with what priority, to reach their financial goals.
• They live comfortably and are not very materialistic people. They enjoy the outdoors: going to the beach, camping, hiking, skiing and do not really take extravagant vacations. Next summer in June, about 11 months away, they are planning a small vacation to Santa Barbara to spend some time at the beach. They estimate that the trip will cost them around $2200 for a 3-night/4-day stay. Also, they hope to take their children on a Disney Cruise in two years. They anticipate that vacation would cost about $6,500 and are saving for it with a special flex CD savings account through the credit union. They enjoy going to Disneyland, so they have annual passes that cost them $140 monthly. They own a two-seater kayak and two paddleboards and use them locally most of the time. They estimate their personal belongings to be worth about $16,000. They enjoy going to concerts and save about $100 per month to go to one big concert a year. The only other family entertainment includes a movie night each month. This is around $175 for the four of them. Alexander and Theresa would like to upgrade the TV in the living room for a better viewing experience. After researching the best TVs, they settled on one that will cost them $600. They are in no hurry to purchase this luxury item, as the one they have works just fine. They are hoping to purchase it next year sometime.
• Theresa's mom watches the kids, so they save quite a bit on childcare, although they do pay her about $250 a month just for things she needs while taking care of them. They also budget an additional $150 a month for other babysitting needed for date nights! College planning is already a long-term goal of theirs. They put $100 per month away in one account for their twins. The balance in this mutual fund, that yields 10%, is currently $2,650. They estimate they will need a balance total of $110,000 for the twins by the time they graduate.
• They have one major credit card, which they use for groceries, gas, and eating out. They pay it off each month, so they do not incur debt. The average balance at the end of the month on their card is $1200. (Place realistic amounts in the appropriate categories.) The Pottery Barn card still has a balance of $1200 (with 0% interest because that was the promotion for the card) from when they purchased their furniture. They will be paying $200 each month for the next 6 months to have it paid off.
• The twins want new tricycles for their birthday, which will cost around $150. They will be turning 3 at the beginning of October, so they have 3 months to save. General supplies (diapers/toiletries, etc.) for the girls run around $200 per month. They are frugal with clothing spending because children grow out of things quickly. They try not to exceed $4800 a year for clothing and miscellaneous items, such as toys, for the twins. Theresa cuts the girls' hair as well as her husband's, to save money, but she gets her hair done once a month, costing about $100 each time.

Problem 1: How do find the AGI? ( adjusted gross income)