For Alicia Thompson, the last few years have been a financial nightmare. It all started when she lost her job. Because she had no income and no emergency fund, she began using her credit cards to obtain the cash needed to pay everyday living expenses. Finally, after an exhaustive job search, she has a new job that pays $51,000 a year.

While her monthly take-home pay is $2,975, she must now establish an emergency fund, pay off her $7,300 credit card debt, and start saving the money needed to begin an investment program.

a. If monthly expenses are $2,150, what is the minimum amount of money Alicia should save for an emergency fund?

b. What steps should Alicia take to pay the $7,300 credit card debt?

c. Alicia has decided that she will save and invest $2,000 a year for the next five years. If her savings and investments earn 3 percent each year, how much money will she have at the end of five years? (Use the future value calculator discussed in the Financial Literacy Calculations feature to complete this problem).