Personal Budget Assignment Businesses use budgets to plan for the future. That's what you will be doing for this assignment. Rather than budgeting for your current financial situation, I want you to put together a budget for your anticipated income and expenses after you graduate from college (or graduate school) and take your first job in your chosen field. Therefore, you will be using estimated income and expense figures. You will be required to turn in the following items: 1) This packet, which guides you in the calculation of several budget amounts, including tax calculations. 2) The Excel personal budget template - feel free to modify the template as needed. I have dropped in some sample numbers, just so you see how the template is formatted. However, you will need to delete my numbers and use your own estimates instead 3) A short report (about 1-2 pages double spaced) that contains 1) your budget cutting initiatives, 2) a reflective paragraph on what you learned from the project, and 3) a bullet point list of the i) similarities, and ii) differences between business budgeting and personal budgeting. I want you to make this as realistic as possible. Unless noted below, you will not need to provide support or sources for your data. However, for certain expenses, you'll need to fill in your data in the spaces provided below. You will be handing in this packet so that I can see your calculations. Use the "Initial Budget" column on the Excel template to create your initial budget and save it, regardless of whether you have a positive or negative cash flow. Later in the assignment, you'll be using the "amended budget" column to reflect your revised budget, after making budget cuts. Hopefully, your revised budget will be balanced, or show a positive cash flow. Keep in mind that the budget template is a MONTHLY budget, so you'll have to divide any annual data by 12 months to get monthly amounts. For salary estimates you can use any of the following: https://www.roberthalf.com/salary-guide/accounting-and- finance , (an interactive calculator that allows you to drill down to salaries, by position, by geographic area, payscale.com, US Dept. of Labor (BLS.gov), monster.com, Simply hired.com, Indeed.com, career services, or want- ads. JOB /POSITION : LOCATION (city/state): / month . ANNUAL SALARY (and bonus): : 12 months = $_ SOURCE of salary information If you expect to have other income (real estate rentals, personal business, interest income, etc.) immediately after graduation tell me what it is here AND put it in the budget: I'll walk you through each type of tax in the next few bullet points. Tax rules are complicated, so we won't get exact amounts. However, the following calculations should give you very good estimates of your taxes. We'll be using 2018 limits and tax rates. 1FICA (Federal Insurance Contribution Act) tax consists of taxes for social security (6.2%) and taxes for m (1.45%). Combined they total 7.65% of your salary and wages. Your employer pays an equal amount. Ifyou are self- employed, you are both the employer and the employee, so you need to DOUBLE the tax. However, the self employed get to deduct the employer portion as a business expense in calculating their income tax. (Check here and double the rate only if you plan to be selfemployed.) Annual Salary and bonus (up to $128,700): $ :1 7.65% = The Social security tax does not apply to amounts earned over $128,700. However, the Medicare tax is in full effect for all levels of salary. Therefore, if your annual salary Is over $128,700, you will pay the amount calculated above PLUS 1.45% of the amount of salary over $128,700. Calculate any additional amount here: Amount of salary and bonus over $128,700 3: 1.45% =$ Total FICA tax: $ + 12 = S I month for your budget. Local income tax- Some cities and counties, have a local income tax. Seattle does not currently have an income tax. If you plan to live and work somewhere other than Seattle, you may use the following 2018 article for a quick look at which states have some local income taxes httpswwwlhebalance.comgcitiesthatley-incometaxes3193246 Calculate your local income tax, ifthere is one: Annual Salary 5 x % = _tax + 12 months = $ per month {check mark this spot if there is no local income tax) -0R-_blo local income tax Federal Income tar Keep the following in mind as you ll out the federal tax calculations on the next page: You can contribute up to $5, 500 per year in either a traditional IRA or a Roth IRA, or a combination of the two unless you make over $135,000 per year, in which case you can NOT contribute to a Roth IRA. Contributions to Roth IRAs are not tax deductible. However, THEY ARE THE BETFER IRA OPTION FOR MANY OF YOU, because the earnings on a Roth IRA are NEVER TAXED. So even if the Roth IRA grows to $1 million or more by the time you retire, you'll never be taxed on the interest earnings! ! (In contrast, contributions to traditional IRAs are tax-deductible now, but the earnings ARE taxed when you withdraw the money at retirement). FYI: Experts recommend saving 1015% of your gross salary each year, in TOTAL, for retirement. These savings can be split between 401(k), ROTH IRA, and traditional IRAs. Assume your em ployer's 401(k) plan will offer a match of up to 3% of your salary. So, to get the free money (match), you would want to contribute 3% of your annual salary to the 401(k) plan. If you want to save 10% in total, that means the 7% of your annual salary should be contributed to a ROTH IRA or a traditional IRA. Use annual figures, not monthly amounts, for the tax calculations. Where applicable, divide by 12 for amounts to put on budget Federal Income Tax Calculation (these tax figures assume you are SINGLE): For Budget Annual Salary (and bonus, if any) /12= PLUS: any other income, such as interest, dividends, business income, real estate rentals /12= LESS: any contributions to 401(k) retirement plans_(maximum of $18,500 per year /12 = LESS: Contributions to traditional IRA: $5,500 max per if your company does NOT have a 401(k) plan. If your company has a 401(k) plan and your salary is above $73,000, then you can /12 = NOT deduct your traditional IRA contributions for tax purposes. If you are contributing to a ROTH IRA, you can NOT deduct it here LESS: Interest paid on student loans during the year, but only if your income is below $80,000. If your income is higher, you can't deduct these interest payments. Maximum deductible: /12 = $2,500 per year. (Est.= total student loans x approx 5%) = Adjusted Gross Income (AGI) (You will use this figure N/A to calculate State income taxes on the next page Less: Standard deduction of $12,000 (assuming you are single) N/A TAXABLE INCOME (use this figure to calculate your federal N/A income tax, below). Calculating your federal tax: Once you have your "taxable income" (last figure on the chart above) you are ready to calculate your income tax using the appropriate tax bracket: CIRCLE your bracket and calculate your tax. Taxable Income (from above) | Then federal tax due is.... Calculate YOUR Federal tax $0-$9,525 10% of taxable income $9,526-$38,700 $952 + 12% of the amount over $9,525 $38,701-$82,500 $4,453 + 22% of the amount over $38,700 $82,501-$157,500 $14,089 + 24% of the amount of $82,500 $157,501-$200,000 $32,089 + 32.5% of the amount over $157,000 $200,001- $500,000 $45,689.50 + 35% of the amount over $200,000 Finally, divide by 12 months to get the amount of federal income tax to put in your monthly budget: State Income Tax- Seven states (including Washington) have no state income tax, but all others do. 3If you plan to live outside of Washington, find the state's 2019 tax rates https://taxfoundation.org/2019-state- individual-income-tax-rates-brackets/ First look to see if there is any personal exemption and/or standard deduction listed (see page headings on page 5) and fill it in below. Then look at the tax brackets. Fill in the correct information on the chart on the next page. WHAT IS THE STATE? Do they have an income tax? YES or NO Start with your Adjusted Gross Income (AGI) from the Federal tax calculations on the last page (EXCEPT Colorado, Illinois, and Indiana start with Federal Taxable Income) Less: Standard deduction (if any) Less: personal exemption (if any) Taxable income for your state Remember, the most income tax rates are graduated and are shown by bracket. (Only a few states have flat tax rates.) Therefore, you must calculate your taxes using the graduated rates shown. USE THE TABLE to list the tax brackets and show your tax computations for each layer of income. Tax Brackets shown on chart Increment being taxed x rate= Amount of Tax TOTAL STATE TAX State income tax :12 = $_ per month for budgetOther line items on the buc_lge_t: I For HOUSING and TRANSPORTATION expense data, you can estimate apartment rentals, car payments, etc., from newspaper ads or online sources. You do not need to provide sources. The first item you may have trouble estimating is your HEALTH INSURANCE. The Kaiser Foundation's \"2018 Employer Health Benefits Annual Survey\" can help: htt s: wwacffb re artsection 2018~em | erhealthbenets survetsummagoffinding. Pull up the survey and then click on \"Summary of ndings". Figure A shows the average yearly insurance premium for single and family coverage for different types of medical plans (HMO, PPO and POS). Figure A also show the AVERAGE [ALL PLANS] amount paid by the employee {worker contribution} vs. the employer (company contribution). Many of you will be working for a company that pays a portion of the medical insurance, so you would use the amount shown as the worker oontri hution: S . However, if you plan to be SEEM use the total amount shown: 5 . Now divide by 12 to get a monthly amount for your budget: 5 . Even if you plan to stay on your pare nt's plan as part of Obamacare (eligible until you turn 26), I'm requiring you to look up this information and use it in your original budget so that you get a good idea of what healthcare would cost. {NOTE: the cost of healthcare is ever changing, and current legislation in WA state may affect this further this is not evictrbut make a reasonable guesstimate). I Use yourju dgment to estimate expenses for FOOD, PETS, PERSONAL CARE, ENTERTAINMENT etc. on the budget template I LOAN REPAYMENTS on the Budget Template is for repaying debt you currently owe, such as student loans and outstanding credit card balances. It is NOT to be used for making new charges on credit cards. All new expenses, whether paid by cash, debit, or credit cards, should be listed in their appropriate categories. I You won't have to worry about property taxes, unless you plan to own your own home directly out of college (or are a returning student and already own your home}. If you plan to own your own home directly after college, use 2% of the home's fair market value as a realistic property tax rate. I SAVINGS OR INVESTMENTS As we have discussed, you REALLY should consider saving money for retirement in an IRA (traditional or Roth IRA, but a Roth IRA will be better for most of you} andlor your company's 401(k} plan. The earlier you start saving, the more you let time do the work for you. Remember our class example, where a $5,500 yearly contribution grows to over $2.4 million by the time you retire? Also, most companies will MATCH your 401(k) contributions, up to a certain percentage or dollar amount. TAKE ADVANTAGE OF THE FREE MONEY your company is offering you for your retirement. Even if you can only save $50 per month, do it! Every little bit helps. I You should also consider having a separate savingsfemergency fund. The rule of thumb is to have an emergency fund equal to 3-6 months of pay. (So, if you make $40,000 per year, you should strive to build a $20,001]I emergency fund). This will help you stay out of debt in the event you lose your job or have some personal or family emergency that prevents you from working for awhile. This type of savings should be invested in something safe, like a CD or money market, that isn't subject to the risks of the stock market. GIFTS and DONATION Sn Every person needs to follow his or her own heart in this matter. However, I would strongly urge you to consider donating time andfor money to your favorite charities. Donations are also tax deductible if they {plus mortgage interest and property, state and local taxes} exceed the standard deduction of$12,000. Always check out charities before you donate, so that you don't get scammed. A good source for comparing charities and assessing their scal responsibility is: CharityNavigatoLorg. SAVE your initial budget, even if your projected balance is negative. NEXTg each line item in your budgetjust as a business manager would do. How and where can you realistically cut costs or change spending behavior to accomplish your goals? In a separate report, BULLET POINT and briey explain at least ve [5} cost cutting initiatives. BE SPECIFIC- h will you accomplish the cuts? What sEic measures will you take to accomplish your goals? Even if you are currently budgeting a positive cash flow, by modifying spending, you will be able to save more or reallocate those funds. REVISE your budget based on the ideas you just presented. Use the \"amended budget" column for your revised numbers so that you can see how the changes differ from your rst budget. You will not need to revise your tax calculations unless you 1) increased your income on the revised budget, or 2} changed the amount of your traditional IRA or 401lk) contribution. Changes in most expenses will not affect your taxes. Additionally, in 1~2 paragraphs, tell me what you have learned from this assignment. Did anything in particular surprise you? Have you ever thought about what your nances would look like when you graduate? Did the budgeted amounts meet your expectations or fall short? What did you learn? Finally, compare and contrast personal and business budgeting. BULLET POINT 3 similarities and then BULLET POINT 3 differences between business budgeting and personal budgeting. [I do NOT want this written in a paragraph. I want TWO clearly labeled lists: 3 Similarities and 3 Differences