Question: Since Cindy was not eligible for her companys 401k during her first year of employment, what could she have done to stick with her plan of beginning to save for retirement with her first paycheck?
Your friend, Cindy Brady, has come to you for financial advice. She graduated from college three years ago and was hired right out of college by a firm she had interned with the summer before her senior year. Her salary is $50,000 /year. She has health and dental insurance through her employer (premiums are deducted from paycheck). They also offer a 401(k) that she is eligible for. During college, she had always planned to begin contributing to a 401(k) with her first paycheck, but she was not eligible with this employer until she worked there for one year. By the time she was eligible, she had purchased a new car, so still didn't begin contributing. Shortly after that, she moved to a nicer (and more expensive) apartment with some friends, so she still doesn't seem to have any of her paycheck left, and still has not started saving for retirement. She knows that the longer she waits to begin saving, the harder it will be, so she has come to you for advice on how she can get her budget under control and start saving. Cindy had previously written out her budget and expected to have almost $300 left over each month that she would save, but her savings account never seems to grow. Also, about a year ago, Cindy found herself with rising credit card debt and she was beginning to have difficulty making even the minimum monthly payments. She made some spending changes and began making higher than minimum payments and has reduced the balances somewhat, but they are taking longer to pay off than she expected. Cindy knows that you can help her to get her financial house in order. She has brought you her paycheck stub, her projected budget and other statement information. She tells you that she wants to start saving for retirement and pay off her credit cards, but doesn't really know where to start. She has also heard that you are supposed to have an Emergency Fund, but doesn't know if she really needs one or how much it should be. She asks you what she can do to help build financial security. Read through and assimilate the following information to help Cindy reach her goals: Monthly Paycheck: \begin{tabular}{lr} Gross Salary & 4,167 \\ FICA Tax & 319 \\ Fed w/h & 225 \\ State w/h & 80 \\ Health Insurance & 200 \\ Dental Insurance & 50 \\ \hline Net Paycheck & 3,293 \end{tabular} Budget: PaycheckLessExpenses:RentStudentLoanpaymentAutoPaymentAutoInsurance&FuelUtilitiesGroceriesMiscExp/EntertainmentSurplus1,2003003002503503003003,2933,000 Statement Balances: AutoLoanStudentLoanCreditCardBalanceCheckingAccountSavingsAccount17,00012,0002,5001,500500 Other Assets (Market Value): CarPersonalProperty15,0005,000 Cindy has tracked her spending for the last 6 months using her checking account and credit card statement. Below are her ACTUAL average Monthly Expenses
