Personal Budget Exercise

In this exercise, I walk you through step by step, how to make a personal budget and savings plan upon graduation. Please follow the steps in order. The two worksheets that you will fill in are on the last two pages of this document.

What to turn in - a paragraph or two explaining what you learned from this exercise. It is not necessary, though you may, include the two worksheets.

First we work on you salary and pay information:

A.What is the annual income you expect to earn upon graduation?

If you are not sure, then go to http://careers.kennesaw.edu/employers/docs/2018-nace-salary-survey-winter.pdf go to page 9 of the survey to see the list of average salaries by major. Note that they majors are in alphabetical order by college so if you are not a business major you will need to go down a few pages to find your major. If you plan to continue on after your undergraduate degree to earn a graduate degree, those degrees and salaries are listed further down in the document.

Choose either average pay or if you know you plan to work for a large company or a small company then choose the appropriate percentile (25^th for small and 75^th for large).

Write down your salary on the line labeled "annual salary" on the top right corner of page 4 of this document.

B.Go to www.paycheckcity.com

1.Chose "paycheck calculator"

2.Choose the default date for check date

3.Enter the state in which you plan to live

4.Enter your expected annual gross salary as found in part A above

5.Enter "annually" for gross pay type

6.Enter "0" for gross pay YTD

7.Enter pay frequency as "monthly" (this is for ease of completing this exercise)

8.Enter "single" for federal filing status (unless you are married or plan to be married by that time and in that case enter 2)

9.Choose "0" or "1" for your federal allowance (unless you are married, have dependents, etc.). Using "0" means they take more taxes out of your pay check each month and you are more likely to get a tax refund at the end of the year. Using "1" means you will take home a little more money each month and will either come close to breaking even or taxes or possibly have a small refund or owe a small amount. Note - if are married or have dependents, you can put in the total number of your dependents plus your spouse plus yourself.

10.Next skip to "state and local" section

11.Leave allowances as "0" (unless married and/or have dependents)

12.Skip to the "voluntary deduction" section

13.Under "deduction #1" enter "health insurance" and for the amount enter $100

14.Next indicate that this is a "fixed amount" - please make sure and do this, DO NOT put %

15.Under "deduction #2" enter 401K (this is your contribution to your retirement) and for the amount enter 5% of your monthly gross salary - to do this, multiply the amount you found in Part A above ( and written on the line in the top right corner on page 4) above by .05 and then divide this number by 12. This will be the amount you put in for deduction #2.

16.Indicate that "deduction #2" is "exempt from federal taxes by checking the box

17.Click "calculate"

18.Based on the results generated in the prior step (#17) Write down the following information on the chart provided on the last pages of this assignment

oMonthly gross pay

oFederal taxes withheld

oState taxes withheld (will be listed by state name)

oSocial security withheld (FICA)

oMedicare withheld

oNet pay

Next we will work on taxes - this information goes in the next box on the worksheet on page 4:

C.Write down your annual gross salary (from step A above)

D.Next enter your annual 401K contribution - to do this, take the 401K contribution from the paycheck worksheet (see number 18 above) and then multiply this number by 12. Put the result of this multiplication in the taxes worksheet.

E.Now subtract D for C as requested in the tax worksheet to arrive at Income subject to Federal Taxation.

F.Go to https://www.fool.com/taxes/2018/04/15/2018-standard-deduction-how-much-it-is-and-why-you.aspx and find the standard deduction that fits your status (single for most of you), enter this on the appropriate line of the worksheet and subtract this from Income subject to Federal Taxation.

G.If you think you will earn any interest or dividends on bank accounts, investments such as CD's or stock investments then please add that on the appropriate line, otherwise enter zero and add to the prior line to arrive at Adjusted Gross Income.

H.Next, go to http://www.irs.gov/pub/irs-pdf/i1040tt.pdf and search for your Adjusted Gross Income number. Then look across the row until you find the column that pertains to your filing status (single for most of you). The number you find is the amount of federal tax you would be expected to pay. Enter this number in the worksheet.

I.Calculate the amount of federal tax you had withheld by taking the federal taxes withheld calculated from the paycheckcity site (see #18 above) and multiply this by 12. Enter that number on the worksheet.

J.Subtract I from H (on the worksheet) to see if you have a tax refund or if you would owe taxes. If you owe, you will want to increase your withholding by having more withheld in your paycheck calculation. A negative number means you get a refund and a positive number would mean you would have to send more money to the IRS.

Next let's work on a simple budget and savings plan

K.For your simple monthly budget

Write down you monthly net pay as found in #18 above (see your paycheck worksheet)

List the following expenses:

i.Savings (larger of $200 or 2% of net pay as found in #18 above and listed on your worksheet) - and yes you MUST save in additional to your 401K. In your first couple of years of working you should accumulate at least 3 - 6 months living expenses that you do not touch, plus an additional few thousand as an emergency fund. You always save first not last!!!

ii.Housing (if you do not know how much rent is, then either do a quick apartment search or assume $1,000 if living along and $600 if sharing). If you will be living at home and will not be required to pay rent, then your housing cost is zero.

iii.Utilities (gas, electric, water) $150 if living alone, $80 if sharing

iv.Phone - $100 or the amount you know your phone is now

v.Cable - $100 or the amount you know your cable is now, $50 if only having internet

vi.Car - put in your current car payment but if you plan to buy I'd put $300, lease put $200

vii.Car insurance - $150 (or if you know the amount use that) and this is probably low estimate

viii.Car gas - $150 (or other amount if known)

ix.Car maintenance - $50

x.Food - if you eat in most of the time, assume at least $70 per week

xi.Entertainment - minimum of $50 per week

xii.Gifts/Travel - average your yearly amounts to a monthly basis and this is probably more than you think!

xiii.Misc. - haircuts, clothes, medical co-pays, etc. This should probably be at least as much as your entertainment

Subtract your monthly expenses from your monthly net pay to see if you have a surplus or a deficit.

L.Savings analysis - based on your savings budget

Go to http://www.bankrate.com/calculators/savings/simple-savings-calculator.aspx

Enter 1 for initial amount

Put 200 (or the amount that you used in part K, section i above) for monthly deposit

Select monthly for how often interest is compounded

Put 5 for the annual interest - yes this is high compared to rates now but over 40 years you should average this or more.

Put 40 for number of years because you will likely work at least 40 years.

Hit calculate and enter the amount on the savings worksheet

M.Savings analysis - 401 K

Clear the calculator

Enter 1 for initial amount

Put the amount that you show as the monthly 401K contribution from your paycheck worksheet

Select monthly for how often interest is compounded

Put 5 for the annual interest

Put 40 for number of years - calculate and enter the amount on the savings worksheet

Please note that this assumes you are never getting a raise and no matching contributions

N.Savings analysis - Delayed

Clear the calculator

Enter 1 for initial amount

Put 200 for monthly deposit

Select monthly for how often interest is compounded

Put 5 for annualinterest

Put 20 for number of years

Repeat but put in 500 a month instead

See the difference delaying savings has - even if you think you will be able to contribute more!!!!

Write up a paragraph or two to upload to let me know what you learned from this assignment.

Monthly Gross Pay

Federal Taxes Withheld

State Taxes Withheld

Social security Withheld

Medicare Withheld

401 K Contribution

Medical Insurance

Net Pay

Paycheck Final InformationAnnual Salary ____________

Tax Information

Annual Gross Salary (monthly gross x 12 or amount listed on line in right corner above)

Less:annual 401 K Contributions

= Income subject to Federal Tax

Add: interest & dividends

= Adjusted Gross Income

-Standard Deduction

= Taxable Income

Federal Tax Owed (per tax table)

Less: Federal Tax Withheld (from paycheck city info above x 12)

= Tax Owed or (Tax Refund)

Budget Information

Monthly Net Pay

Expenses:

Savings (larger of $200 or 2% of net pay)

Housing

Student Loan payment

Utilities

Phone

Cable

Car payment

Car insurance

Car gas

Car maintenance

Food

Entertainment

Gifts/Travel

Miscellaneous:

Toiletries

Haircuts

Dry cleaning/laundry

Medical - copayments, medicines

Pet expenses

Furniture, home repairs, maintenance

Clothing

Net Surplus or Deficit

Savings Information:

Amount saving $200 per month grows to over 40 years ______________________________

Amount 401K basic contributions grows to over 40 years _____________________________

Amount delaying savings until 20 years from now grows to ____________________________

Amount delaying savings until 20 years but bigger contribution grows to _________________

Combined Savings and 401K if start early ____________________

Please note we have made some basic assumptions about interest rate and no change in contributions. Changing either of these slightly can greatly alter your results.