• Before you begin: Review the key principles in unit 4A of your textbook regarding the importance of taking control of your finances. Also, carefully read the following brief background description of the Davidson family before starting into the project.
  • Gary and Michelle Davidson currently have 2 children (ages 9 and 7) and a golden retriever dog. Gary works as a manager at a local manufacturing plant. His current annual salary is $59,400. They have barely started saving for retirement and are not receiving full matching funds from the company for their 401-k. To qualify for the maximum matching funds from Gary's employer, they would need to triple their current 401-k contributions.
  • They tend to spend more money than they make each month but are not sure how much more. They feel like they have too much credit card debt, and don't have enough money set aside for family savings in the categories of emergency, Christmas, medical, or vacation.
  • In reality, the Davidson's feel like they are not sure where the money seems to be going and would like to start a monthly budget action plan. In summary, they need your help!

• Download Spreadsheet: Davidson Family Monthly Budget Action Plan Download Davidson Family Monthly Budget Action Plan

• • This provides a spreadsheet framework to quantify the Davidson's monthly inflow and outflow. The formulas are already set up and you will be able to use the template to help the Davidson's balance their monthly budget, helping them achieve their financial goals.

• Procedure: Build a "status quo" budget for the Davidson's and make a hard copy. That is, find out the status of their current net monthly cash flow. Read the detailed information about their finances and enter the prorated monthly amounts into the categories of income, payroll deductions, savings, and expenses. Make sure each amount is an accurate monthly reflection of their financial situation. Note: there may be more information than you will use and the items may not necessarily match the order of the spread sheet. Be sure to proof read afterwards.

• • Each month Gary's payroll deductions include $367.45 for federal income tax, $162.50 for state income tax, and $378.68 for their FICA (Social Security and Medicare) tax. Currently $34.17 is being deducted and deposited into Gary's 401-k.
  • Probably one of the biggest concerns for the Davidson's right now is getting on top of the credit card debt. Their current MasterCard balance of $4,730 is being assessed at an 18% APR finance charge and they have a minimum payment of $95 monthly. They are hoping to pay off their debt within two years but this would require that they increase their monthly credit card payment to at least $236.14 to meet their goal.
  • The family bought a home 5 years ago for $250,000. Their loan is for 30 years at a fixed rate of 6% APR and their monthly payment is $1349. To safeguard against theft, fire, and other calamities, they carry homeowner's insurance with annual premium of $984. They are insuring their home with a different company than their vehicle insurance company and hope to combine both types of policies with the same insurer to save 15% on premiums. The Davidson's pay $675 every six months for county property taxes on their home and lot.
  • They currently pay a monthly cable TV bill of $65.49, a landline phone bill of $32.50, an Internet provider bill of $43.68, and a cell phone bill of $109.45. Their utility bills for electricity, natural gas, and water/sewer/garbage are $39.56, $89.75, and $53.49 respectively.
  • The Davidson's are a two-vehicle family. They own an older mini-van that is paid for, but recently purchased a brand new Ford F-150 4x4. They had to borrow just under $30,000 at a 7% APR, which results in a $586 monthly payment. They have estimated that they spend about $360 per year on vehicle maintenance and their vehicle insurance premium is $468 every six months. Lately, they have been averaging about $150 per month on gasoline for the van and truck combined.
  • Because the family rarely plans out their weekly meals or uses coupons $635 is a typical monthly average on groceries. They eat out quite often and spend about $125 at restaurants. Both Gary and Michelle belong to a local health club and spend $48 per month on membership dues, their clothing expenditures average about $90 for the family, entertainment is $65, household supplies about $35, miscellaneous items $70, and their monthly dog food and vet bills for their golden retriever average about $42. They also pay approximately $60 to various charities each month.
  • Finally, the Davidson's are doing their best to protect the family with health and life insurance policies. Currently they pay $197.89 (their monthly share of the company's health insurance package) and $47.82 (their quarterly life insurance premium).

• Analysis: Upon completing the "status quo" budget, use the spreadsheet to modify the quantities so you can get the net monthly cash flow to zero and achieve as many of the goals as possible from the "Before you begin" section above. You can do this by trimming and consolidating expenses and possibly recommending some realistic ways to increase income.

Answer the following questions using this discussion:

1. What was the original (status quo) net monthly cash flow for the Davidson's?
2. What percent of their monthly gross income is dedicated to the combination of their mortgage, homeowner's insurance, and county property taxes?
3. What percent of their monthly gross income is dedicated to vehicle expenses?
4. List some of your creative but realistic recommended changes to their budget.
5. Reflect upon the personal impressions you had as you put together the Davidson's original budget and how this activity might impact your future financial decisions.

AutoSave off OFF NBF 2. Home Insert Draw Page Layout X A1 1 20 21 22 23 24 25 26 Paste 27 28 29 30 31 32 Excel File Edit View Insert Format Tools 33 34 25 + Geneva 9 10 11 12 13 14 15 16 17 18 19 Medical/Dental/Vision B TU INCOME Miscellaneous Income Salary B PAYROLL DEDUCTIONS Federal Income Tax Vacation fix Income Total FICA Tax State Income Tax 401-k Retirement Plan Payroll Deductions Total FAMILY SAVINGS Emergency Christmas Ready 17 L Family Savings Total Student Template + 12 Formulas Monthly 0.00 A A 0.00 0.00 Data JUN 26 Data Window Help -M Davidson Family Monthly Budget Action Plan.xls Read-Only Compatibility Mode Developer Tell me Review View = = D Davidson Family Monthly Budget Action Plan === EXPENSES Home Cable TV Cellular telephone Electricity Home Mortgage County Property Taxes Internet Landine telephone Natural Gas Water/Sewer/Garbage Home Total Daily Living Charitable Contributions Clothing Credit Card Payment Dining Out Entertainment Groceries Health Club Dues Household Supplies Miscellaneous Pet Food / Vet bills Daily Living Total . Wrap Text Merge & Center 130 Monthly 0.00 0.00 G 1,143 General EXPENSES Insurance Auto Health Homeowner's Life 9 Fuel H Transportation Maintenance/Repairs Truck Payment Insurance Total W Transportation Total Total Expenses Net Monthly Cash Flow Cell Conditional Format Formatting as Table Styles Monthly 0.00 L 0.00 0.00 Reminder: Cash Flow Income-Deductions Savings-Expenses 0.00 J K 3. 3IE Insert Delete Format O L M 18 N Sun Jun 26 4:03 PM Share Sort & Find & Filter Select 0 P Comments Analyze Data R 100% AutoSave off OFF NBF 2. Home Insert Draw Page Layout X A1 1 20 21 22 23 24 25 26 Paste 27 28 29 30 31 32 Excel File Edit View Insert Format Tools 33 34 25 + Geneva 9 10 11 12 13 14 15 16 17 18 19 Medical/Dental/Vision B TU INCOME Miscellaneous Income Salary B PAYROLL DEDUCTIONS Federal Income Tax Vacation fix Income Total FICA Tax State Income Tax 401-k Retirement Plan Payroll Deductions Total FAMILY SAVINGS Emergency Christmas Ready 17 L Family Savings Total Student Template + 12 Formulas Monthly 0.00 A A 0.00 0.00 Data JUN 26 Data Window Help -M Davidson Family Monthly Budget Action Plan.xls Read-Only Compatibility Mode Developer Tell me Review View = = D Davidson Family Monthly Budget Action Plan === EXPENSES Home Cable TV Cellular telephone Electricity Home Mortgage County Property Taxes Internet Landine telephone Natural Gas Water/Sewer/Garbage Home Total Daily Living Charitable Contributions Clothing Credit Card Payment Dining Out Entertainment Groceries Health Club Dues Household Supplies Miscellaneous Pet Food / Vet bills Daily Living Total . Wrap Text Merge & Center 130 Monthly 0.00 0.00 G 1,143 General EXPENSES Insurance Auto Health Homeowner's Life 9 Fuel H Transportation Maintenance/Repairs Truck Payment Insurance Total W Transportation Total Total Expenses Net Monthly Cash Flow Cell Conditional Format Formatting as Table Styles Monthly 0.00 L 0.00 0.00 Reminder: Cash Flow Income-Deductions Savings-Expenses 0.00 J K 3. 3IE Insert Delete Format O L M 18 N Sun Jun 26 4:03 PM Share Sort & Find & Filter Select 0 P Comments Analyze Data R 100%