9. Preparing a budget

A cash-flow budget uses the same format as a cash-flow statement. It is prepared on a monthly basis and it reflects budgeted income and expenses.

In addition to the cash-flow statement, Brock and Sally made a list of budget assumptions, listed for you here:

	Brocks income will increase by 5%, effective January 1. His bonus is generally 10% of his income in the previous year, and he receives it in January.
	Sallys raise will be 3%, effective January 1.
	Interest and dividend income will conservatively be the same in 2017 as it was in 2016 and will be received on a monthly basis.
	Mortgage payments will be the same in 2017 as they were in 2016.
	Federal income taxes are estimated at 20%, state income taxes at 6%, and social security taxes at 7.65% of wages, including Brocks bonus.
	Property insurance and property taxes are paid every six months, in June and December. The amount is expected to be the same in 2017 as it was in 2016.
	Sally will contribute $60 per week for the employee portion of their medical insurance. According to her pay schedule, April and June are five-week months.
	Auto insurance is paid at the end of each calendar quarter and should not be more than it was in 2016.
	Brock and Sally would like to purchase a new car in the next few years and will put $500 a month away specifically for that purpose.
	Brock and Sally dont expect the amount of variable expenses to change in 2017 except that they would like to double their charitable contributions and go on a vacation to Ireland in June. The vacation will cost $6,000.
	Gift purchases are made mostly around the holidays, so Brock and Sally are planning to pay half of the gift expense in December and half in January when the credit card bill comes in.
	Water and sewer is billed quarterly, in January, April, July, and October. The cost of heat should be spread over six months from November to April.
	All other variable expenses can be spread evenly every month at 2016 amounts.

Use the information from their cash-flow statement (listed in the first column of the following annual budget) and their budget assumptions to fill in the missing amounts for the first six months of Brock and Sallys monthly budget for 2017. (Note: Be sure to fill in every blank space with a value. Round each answer to the nearest dollar.)

Annual Budget Name: Brock and Sally Wilson Cash-Flow Statement 2017 2016 Jan. Feb. Mar. Apr. May Jun. INCOME Brock's salary 58,000 Sally's salary 52,200 Brock's Bonus 5,000 Interest and 150 dividends Total Income $115,350 EXPENDITURES Fixed Expenses Mortgage 15,360 Brock's federal 12,600 income taxes Brock's state 3,780 income taxes Brock's social 4,820 security taxes 10,440 3,242 3,132 3,993 kellekkel / klukla la la la 4,300 1,200 2,400 700 $62,725 2 5 Food 1,080 Entertainment 3,000 Variable Expenses Food 1,080 Entertainment 3,000 Dining out 4,700 Electric 350 Water and sewer 400 Heat 1,250 Cable TV 3, Telephone 600 Cell phone 900 " ||"""" || """ Gifts 2,000 Personal care 600 Medical expenses 3,700 Vehicle gas and 2,530 maintenance Charitable 1,500 contributions Vacation Total Variable $26,010 Expenses Total Expenses $88,735 SURPLUS $26,615 (DEFICIT) Brock and Sally have an emergency fund of $40,000. They would like to start saving for retirement, but they have not signed up for their companies' 401(k) plans. Neither company matches 401(k) contributions. What do you suggest for Brock and Sally based on their goals and the budget that they have put together? The $40,000 that the Wilsons have saved for an emergency is three months of expenses. They have not, however, taken advantage of the employer 401(k) plans that are available to them. If an employer does not match contributions, it is advantageous to contribute to a company-sponsored retirement savings plan because the contributions to the plan are invested with earnings. If the Wilsons invest part of their surplus in their 401(k) plans, they will save the designated amount plus another of that amount because of the tax savings. Annual Budget Name: Brock and Sally Wilson Cash-Flow Statement 2017 2016 Jan. Feb. Mar. Apr. May Jun. INCOME Brock's salary 58,000 Sally's salary 52,200 Brock's Bonus 5,000 Interest and 150 dividends Total Income $115,350 EXPENDITURES Fixed Expenses Mortgage 15,360 Brock's federal 12,600 income taxes Brock's state 3,780 income taxes Brock's social 4,820 security taxes 10,440 3,242 3,132 3,993 kellekkel / klukla la la la 4,300 1,200 2,400 700 $62,725 2 5 Food 1,080 Entertainment 3,000 Variable Expenses Food 1,080 Entertainment 3,000 Dining out 4,700 Electric 350 Water and sewer 400 Heat 1,250 Cable TV 3, Telephone 600 Cell phone 900 " ||"""" || """ Gifts 2,000 Personal care 600 Medical expenses 3,700 Vehicle gas and 2,530 maintenance Charitable 1,500 contributions Vacation Total Variable $26,010 Expenses Total Expenses $88,735 SURPLUS $26,615 (DEFICIT) Brock and Sally have an emergency fund of $40,000. They would like to start saving for retirement, but they have not signed up for their companies' 401(k) plans. Neither company matches 401(k) contributions. What do you suggest for Brock and Sally based on their goals and the budget that they have put together? The $40,000 that the Wilsons have saved for an emergency is three months of expenses. They have not, however, taken advantage of the employer 401(k) plans that are available to them. If an employer does not match contributions, it is advantageous to contribute to a company-sponsored retirement savings plan because the contributions to the plan are invested with earnings. If the Wilsons invest part of their surplus in their 401(k) plans, they will save the designated amount plus another of that amount because of the tax savings