Critical Thinking Case 2 - Part 1

Brooke Stauffer Learns to Budget

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

For a while, Brooke managed pretty well on her monthly take-home pay of $2,893; but by the end of 2017, she was having trouble fully paying all her credit card charges each month. Concerned that her spending had gotten out of control and that she was barely making it from paycheck to paycheck, she decided to list her expenses for the past calendar year and develop a budget. She hoped not only to reduce her credit card debt but also to begin a regular savings program.

Brooke prepared the following summary of expenses for 2017:

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
Installment 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

After reviewing her 2017 expenses, Brooke made the following assumptions about her expenses for 2018:

All expenses will remain at the same levels, with these exceptions:

Auto insurance, auto expenses, gas and electricity, and groceries will increase 5%.

Clothing purchases will decrease to $2,250.

Phone and cable TV will increase $5 per month.

Furniture purchases will decrease to $660, most of which is for a new television.

She will take a 1-week vacation to Colorado in July at a cost of $2,100.

All expenses will be budgeted in equal monthly installments except for the vacation and these items:

Auto insurance is paid in two installments due in June and December.

She plans to replace the brakes on her car in February at a cost of $220.

Visits to the dentist will be made in March and September.

She will eliminate her bank credit card balance by making extra monthly payments of $75 during each of the first six months.

Regarding her income, Brooke has just received a small raise, so her take-home pay will be $3,200 per month.

Prepare a preliminary cash budget for Brooke for the year ending December 31, 2018, using the format shown in Worksheet 2.3. Enter all expense amounts as positive values. Round your answers to nearest whole dollar. Use these rounded values in the subsequent requirements.

Income and Expense Statement
Name: Brooke Stauffer
For the year	Ending December 31, 2018
Income		2017	2018
Salary	Brookes take-home pay of $2,893/mo in 2017 and $3,200/mo in 2018	$	$
Other income
	(I) Total Income	$	$
Expenses
Housing	Rent	$	$
	Repairs
Utilities	Gas, electric, water
	Phone
	Cable TV and other
Food	Groceries
	Dining out
Transportation	Auto loan payments
	Auto related expenses
	Other transportation expenses
Medical	Health-related insurance
	Doctor, dentist, hospital, medicines
Clothing	Clothes, shoes, accessories
Insurance	Homeowner's
	Life
	Auto
Taxes	Income and social security
	Property (if not included in mortgage)
Appliances, furniture &	Loan payments
other major purchases	Purchases and repairs
Personal care	Laundry, cosmetics, hair care
Recreation &	Vacations
entertainment	Other recreation and entertainment
Other items	Misc.
	Credit card pmts: 6 mo.@$75/mo.
	Other expenses
	(II) Total Expenses	$	$
CASH SURPLUS (OR DEFICIT)		$	$

Compare Brooke's estimated expenses with her expected income. For 2018, Brooke's total expenses of $ are -Select-lessmoreItem 45 than her expected total income.

Critical Thinking Case 2 - Part 2 Brooke Stauffer Learns to Budget

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

For a while, Brooke managed pretty well on her monthly take-home pay of $2,893; but by the end of 2017, she was having trouble fully paying all her credit card charges each month. Concerned that her spending had gotten out of control and that she was barely making it from paycheck to paycheck, she decided to list her expenses for the past calendar year and develop a budget. She hoped not only to reduce her credit card debt but also to begin a regular savings program.

Brooke prepared the following summary of expenses for 2017.

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
Installment 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

After reviewing her 2017 expenses, Brooke made the following assumptions about her expenses for 2018:

All expenses will remain at the same levels, with these exceptions:

Auto insurance, auto expenses, gas and electricity, and groceries will increase 5 percent.

Clothing purchases will decrease to $2,250.

Phone and cable TV will increase $5 per month.

Furniture purchases will decrease to $660, most of which is for a new television.

She will take a one-week vacation to Colorado in July at a cost of $2,100.

All expenses will be budgeted in equal monthly installments except for the vacation and these items:

Auto insurance is paid in two installments due in June and December.

She plans to replace the brakes on her car in February at a cost of $220.

Visits to the dentist will be made in March and September.

She will eliminate her bank credit card balance by making extra monthly payments of $75 during each of the first six months.

Regarding her income, Brooke has just received a small raise, so her take-home pay will be $3,200 per month.

Make any necessary adjustments to Brookes estimated monthly expenses, and revise her annual cash budget for the year ending December 31, 2018, using Worksheet 2.3. Enter all expense amounts as positive values. Round your answers to nearest cent.

ANNUAL CASH BUDGET BY MONTH

Name(s) Brooke Stauffer

For the year

Ending December 31, 2018

INCOME

Jan.

Feb.

Mar.

Apr.

May

June

July

Aug.

Sept.

Oct.

Nov.

Dec.

Total

Take-home pay

$

$

$

$

$

$

$

$

$

$

$

$

$

[1] Total Income

$

$

$

$

$

$

$

$

$

$

$

$

$

EXPENDITURES

Rent

$

$

$

$

$

$

$

$

$

$

$

$

$

Gas & electricity

$

$

$

$

$

$

$

$

$

$

$

$

$

Phone

$

$

$

$

$

$

$

$

$

$

$

$

$

Cable TV

$

$

$

$

$

$

$

$

$

$

$

$

$

Groceries

$

$

$

$

$

$

$

$

$

$

$

$

$

Dining out

$

$

$

$

$

$

$

$

$

$

$

$

$

Auto loan payments

$

$

$

$

$

$

$

$

$

$

$

$

$

Car expenses (gas, repairs, and fees)

$

$

$

$

$

$

$

$

$

$

$

$

$

Medical care, dentist

$

$

$

$

$

$

$

$

$

$

$

$

$

Clothing

$

$

$

$

$

$

$

$

$

$

$

$

$

Auto insurance

$

$

$

Installment loan for stereo

$

$

$

$

$

$

$

$

$

$

$

$

$

Personal care

$

$

$

$

$

$

$

$

$

$

$

$

$

Vacation

$

$

Other recreation & entertainment

$

$

$

$

$

$

$

$

$

$

$

$

$

Appliance purchases

$

$

$

$

$

$

$

$

$

$

$

$

$

Miscellaneous expenses

$

$

$

$

$

$

$

$

$

$

$

$

$

Credit card payments

$

$

$

$

$

$

$

Roth IRA contributions

[2] Total Expenditures

$

$

$

$

$

$

$

$

$

$

$

$

$

MONTHLY CASH SURPLUSES (DEFICIT) [1-2]

$

$

$

$

$

$

$

$

$

$

$

$

CUMULATIVE CASH SURPLUS (DEFICIT)

$

$

$

$

$

$

$

$

$

$

$

$

$

Analyze the budget and advise Brooke on her financial situation. Suggest some long-term, intermediate, and short-term financial goals for Brooke, and discuss some steps she can take to reach them.