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, Deon and May made a list of budget assumptions, listed for you here:

•	Deon’s 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.
•	May’s 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 Deon’s 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.
•	May 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.
•	Deon and May would like to purchase a new car in the next few years and will put $500 a month away specifically for that purpose.
•	Deon and May don’t 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 Deon and May 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 Deon and May’s monthly budget for 2017. Note: Be sure to fill in every blank space with a value.

Annual Budget	Cash-Flow Statement	2017
Name: Deon and May Daley
	2016	Jan.	Feb.	Mar.	Apr.	May	Jun.
INCOME
Deon’s salary	59,000
May’s salary	53,100
Deon’s Bonus	5,000
Interest and dividends	150
Total Income	$117,250
EXPENDITURES
Fixed Expenses
Mortgage	14,976
Deon’s federal income taxes	12,800
Deon’s state income taxes	3,840
Deon’s social security taxes	4,896
May’s federal income taxes	10,620
May’s state income taxes	3,186
May’s social security taxes	4,062
Property taxes	4,100
Property insurance	1,200
Medical insurance	2,400
Automobile insurance and registration	700
Savings for auto purchase
Total Fixed Expenses	$62,780
Variable Expenses
Food	1,620
Entertainment	3,000
Dining out	4,700
Electric	350
Water and sewer	800
Heat	1,250
Cable TV	3,000
Telephone	600
Cell phone	900
Gifts	2,000
Personal care	600
Medical expenses	3,700
Vehicle gas and maintenance	2,530
Charitable contributions	1,500
Vacation
Total Variable Expenses	$26,550
Total Expenses	$89,330
SURPLUS (DEFICIT)	$27,920

Deon and May 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 Deon and May based on their goals and the budget that they have put together?

The $40,000 that the Daleys 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 Daleys 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.