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? 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.

1. Calculate Jim's monthly income: \[ \text{Monthly net income} = \frac{\$67,\!000}{12} \approx \$5,\!583 \] 2. Identify their monthly fixed expenses: - Mortgage (including insurance): \(\$2,\!800\) - Additional expenses: \(\$2,\!700\) \[ \text{Total fixed expenses} = \$2,\!800 + \$2,\!700 = \$5,\!500 \] 3. Note Jim's retirement contribution: \[ \text{Retirement contribution} = 15\% \text{ of } \$67,\!000 = \$10,\!050 \text{ per year} \ (\approx \$837.50 \text{ per month}) \] This further reduces the amount available for other uses. 4. Evaluate their liquidity: - With monthly expenses of approximately \(\$5,\!500\) and a retirement deduction of about \(\$837.50\), almost all of Jim's income is pre-allocated. - Their savings amount is only \(\$5,\!000\), which is very limited as a buffer for emergencies given their monthly obligations. 5. Determine the recommendation: - The lack of sufficient liquid assets to cover unexpected expenses indicates that they should focus on improving their liquidity management. \[ \textbf{Answer: } \text{b. They should work on their plan for managing their liquidity.} \]