2.2 Alex Mikhailov Learns to Budget

Alex Mikhailov recently graduated from college and moved to Atlanta to take a job as a market research analyst. He was pleased to be financially independent and was sure that, with his $45,000 salary, he could cover his living expenses and have plenty of money left over to furnish his studio apartment and enjoy the wide variety of social and recreational activities available in Atlanta. He opened several department-store charge accounts and obtained a bank credit card.

For a while, Alex managed pretty well on his monthly take-home pay of $2,893, but by the end of 2015, he was having trouble fully paying all his credit card charges each month. Concerned that his spending had gotten out of control and that he was barely making it from paycheck to paycheck, he decided to list his expenses for the past calendar year and develop a budget. He hoped not only to reduce his credit card debt but also to begin a regular savings program.

Alex prepared the following summary of expenses for 2015:

Item Annual Expenditure

Rent $12,000

Auto insurance 1,855

Auto loan payments 3,840

Auto expenses (gas, repairs, and fees) 1,560

Clothing 3,200

Instalment loan for stereo 540

Personal care 424

Phone 600

Cable TV 440

Gas and electricity 1,080

Medical care 120

Dentist 70

Groceries 2,500

Dining out 2,600

Furniture purchases 1,200

Recreation and entertainment 2,900

Other expenses 600

Critical Thinking Question

2. Using this information and Worksheet 2.2, construct the Alexs income and expense statement for the year ending December 31, 2015.