Description

Read these directions carefully!

When was the last time you looked over your financial records? How many of you actually have a budget? The goal of this project is help you prepare your own budget by analyzing a fictional characters finances.

While working on this project, your instructor and TAs will give limited assistance. It is at their discretion how much help they can offer. You may also seek other sources of help such as other students, friends, etc.

Once you complete the project, double and triple-check your answers.

Instructions

We use budgets to keep our finances in check. The project should teach you the steps to create your own budget including how to budget a savings account. The sooner you begin a budget, the better chance you have of keeping debt and financial frustration low.

Our first task is to look at a monthly cash flow chart and use that to begin a budget. A monthly cash flow chart is used to keep track of where money is coming from (income) and where money is going (spending and bills). Another good use for a cash flow chart is to locate any extra cash you have available as well as making adjustments to your spending so you never spend more than you make.

Answers need to be accurate to the nearest cent.

Do not use dollar signs ($) in your responses. And don't put commas in your answers!

Question 1

Tim's salary is $45,000 a year. This is his gross yearly salary; his salary for the entire year before taxes are deducted. What is his gross monthly income? ________

Question 2

Suppose 25% of his salary is taken out for taxes. How much tax does Tim pay each month?

Record this number as Taxes _______________

Question 3

Compute Tim's monthly take-home pay. This is his net pay; the actual amount available to Tim from his paycheck after taxes are taken out.

Record this number as: Total Income _____________

Question 4

Tim buys a house. He takes out a $132,000 loan for 30 years at an interest rate of 5%. How much will his monthly mortgage payment be? (Use http://www.brianveitch.com/web_prog/loan/ to find the monthly payment, similar to Project #2.)

Record this number as A mortgage _____________

Question 5

Property taxes are $3300 a year. The bank will spread this amount over 12 months and include it into your monthly mortgage payment. This is called ESCROW. How much is Tim's escrow payment for the property taxes?

Record this number as Escrow __________

Question 6

Now that Tim bought his own home, he needs to protect it. He purchases homeowner's insurance, which is a yearly charge of $300. He budgets for monthly payments. How much is Tim's monthly homeowner's payment?

Record this number as Homeowner's insurance __________

Question 7

Water, electricity, trash pickup, and natural gas are other expenses that cost additional money each month. Tim spends $30 per month for water and trash, $60 per month for electricity, and $44 per month for natural gas. How much does he spend in total for these utilities?

Record these numbers individually as Electricity, Natural Gas, and Water/Trash ___________

Question 8

Tim's cell phone bill is $45 a month. TV service and internet costs $85 a month. How much does he pay in total for these services?

Record these numbers as Phone and Cable/Internet ________________

Question 9

Tim heard he should deposit at least 8% of his take-home income into a savings account. Tim decides to save 4% of his take-home income. How much is he putting toward his savings each month?

Record this number as Transfer to Savings ______________

Question 10

Another rule of thumb is you should have at least 3 months' worth of your take-home income in your savings in case you lose your job or an emergency occurs. How much is 3 months' worth of take-home income for Tim?

You do not need to record this number, as it is not part of the table. ______________

Question 11

Let's not forget about food. After a month of tracking his food spending, he finds he spends $70 on restaurants and $200 on groceries. How much does he spend total on these each month?

Record these numbers as: Dining/Eating out and Groceries ___________

Question 12

Tim takes out an $8,000 loan to buy a car and plans to have it paid off in 6 years. He finances the car at 4.5%. What is his monthly car payment? (Use http://www.brianveitch.com/web_prog/loan/ to find the monthly payment.)

Record this number as: Car Payment__________________

Question 13

Now that Tim has a car, he has to purchase car insurance. Tim buys a policy that costs $900 per year. He pays his insurance bill monthly. What is his monthly car insurance payment?

Record this number as: Car Insurance ________________

Question 14

Tim can't drive his car without purchasing gas. After tracking a month's worth of spending, Tim finds he spends $95 a month in gas. Tim also finds that he spends $60 a month on new clothes and $80 a month on entertainment. What is his monthly cost for all of these items combined?

Record these numbers as: Fuel, Clothing, and Entertainment __________________

Question 15

Tim also has some credit card debt. He currently pays $75 per month to reduce his balance on his credit cards. And after graduating from college, Tim started paying back his student loans. His monthly student loan payment is $120 per month. How much does he spend total each month on these debts?

Record these numbers as: School Loans and Credit Cards ______________