Sally’s Situation

Sally is a single mother with a 15-year old son and a 10-year old daughter. Although she has a good job in advertising, Sally feels like she never has quite enough money left over after paying the bills. She and her children have also come up with a wish list of financial goals, and she has asked you for help in meeting them. Your job is to help Sally understand exactly where she stands financially and help her execute a plan to meet her goals or, if necessary, suggest ways to make the goals more attainable. Here is Sally's financial situation:

INCOME:

• Sally's gross pay is $55,000/year, paid in 12 equal paychecks over the year.
• From each paycheck, Sally has $1174 in deductions that go toward paying her health insurance, federal income tax withholding, Medicare, Social Security, retirement, and other standard deductions.
• Sally also has $3,500 in a regular savings account, earning 1.5% APR, compounded monthly (she receives an interest payment each month). She feels like she cannot make any regular additions to her savings account because she doesn’t have enough money.

EXPENSES:

• Sally and her children live in an apartment that costs $800/month rent plus $200/month for utilities.
• Each month she has to pay on a bank loan she got two years ago (5-year loan at 4.95% interest) to buy a $19,000 car.
• Her payments for insurance/gas/maintenance on the car amount to $1,800 per year.
• Sally grabs coffee and pastry at a local bakery on the way to work, and, because their lives are so busy, the family eats out at least three times a week (nothing too fancy!) Between eating in and out, Sally estimates her monthly food bill comes to $775/month.
• She also figures that she spends about $200/month for clothes and $250/month for miscellaneous items (from haircuts to allowances for the children).
• Recreation and entertainment (vacations, summer camps, movies, etc.) averages $225/month.
• She pays $129.00/month for all 3 of their smart phones, and $65.00/month for Internet and cable.
• Finally, Sally makes the minimum monthly payment (3% of the balance) on her credit card. Her current balance is $3,500 at 13.5% APR (compounded monthly).

FINANCIAL GOALS:

1. Buy a house. Sally is considering buying a house for $150,000. She has a friend at the bank who says she can get a 30-year fixed mortgage at 4.6% interest. Property tax is $2,150 per year, and insurance would be about $1100 per year. The utilities on the house average $255/month.
2. Pay off the credit card in 2 years.
3. Save for college. Sally would like to save $300/month toward her children's college education.
4. Contribute $50/month toward charity.
5. Sally's son dreams of owning his own car when he gets his license next year. His buddy has an old beater that he's willing to sell for $1,200. Sally expects her car insurance to go up $250/month after her son starts driving.
6. Be secure in her retirement planning. Part of Sally’s regular monthly deductions includes 7% of her gross salary (which her company matches, leading to a total of 14%) deposited in her retirement savings account, which earns on average 4.3% APR. By the time she retires, Sally figures she will have been paying into the account for 35 years, and she would like to be

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Question 1- What is Sally's monthly take-home pay after taxes and deductions?

Question 2- What is Sally's monthly interest and dividend income?

Question 3- What is Sally's total monthly income?

Question 4- What is Sally's monthly expenses for rent/mortgage?

Question 6- What is Sally's monthly expenses for her car including payment, gas and maintenance?