Life Situation

Financial Data

Single Age 22 Starting a career No dependents Monthly income $2,600 Living expenses $2,180 Assets $8,200 Liabilities $3,470 Emergency fund $530

Since the major portion of Pams income is based on commission, her earnings vary from one month to the next. This situation makes it difficult for her to establish a realistic budget. During lean months, she has had to resort to using her credit card to make ends meet. In fact, her credit card debt, $3,470, is at a fairly high level. In addition, she has not been able to save much for various unexpected expenses and for her long-term financial security.

During the year, Pam has had tax withholding greater than her actual tax liability. As a result, Pam is expecting a fairly large tax refund. In the past, she has always used tax refunds to finance major purchases (a vacation or furniture) or pay off credit card debt. Currently, she is also considering saving some of the money.

Questions

1. Q1. How might Pam budget for fluctuations in her income caused by commission earnings?