Chapter 2 Critical Thinking Case 2 - Part 2 Brooke Stauffer Learns to Budget Bro
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Question
Chapter 2
Critical Thinking Case 2 - Part 2
Brooke Stauffer Learns to Budget
Brooke Stauffer recently graduated from college and moved to Atlanta to take a job as a market research analyst. She was pleased to be financially independent and was sure that, with her $45,000 salary, she could cover her living expenses and have plenty of money left over to furnish her studio apartment and enjoy the wide variety of social and recreational activities available in Atlanta. She opened several department-store charge accounts and obtained a bank credit card.
For a while, Brooke managed pretty well on her monthly take-home pay of $2,893, but by the end of 2017, she was having trouble fully paying all her credit card charges each month. Concerned that her spending had gotten out of control and that she was barely making it from paycheck to paycheck, she decided to list her expenses for the past calendar year and develop a budget. She hoped not only to reduce her credit card debt but also to begin a regular savings program.
Brooke prepared the following summary of expenses for 2017.
After reviewing her 2017 expenses, Brooke made the following assumptions about her expenses for 2018:
All expenses will remain at the same levels, with these exceptions:
Auto insurance, auto expenses, gas and electricity, and groceries will increase 5 percent.
Clothing purchases will decrease to $2,250.
Phone and cable TV will increase $5 per month.
Furniture purchases will decrease to $660, most of which is for a new television.
He will take a one-week vacation to Colorado in July at a cost of $2,100.
All expenses will be budgeted in equal monthly installments except for the vacation and these items:
Auto insurance is paid in two installments due in June and December.
She plans to replace the brakes on her car in February at a cost of $220.
Visits to the dentist will be made in March and September.
She will eliminate her bank credit card balance by making extra monthly payments of $75 during each of the first six months.
Regarding her income, Brooke has just received a small raise, so her take-home pay will be $3,200 per month.
Make any necessary adjustments to Brooke’s estimated monthly expenses, and revise her annual cash budget for the year ending December 31, 2018, using Worksheet 2.3. Enter all expense amounts as positive values. Round your answers to nearest cent.
Analyze the budget and advise Brooke on her financial situation. Suggest some long-term, intermediate, and short-term financial goals for Brooke, and discuss some steps she can take to reach them.
Explanation / Answer
Soln : Please refer here the table for the year 2018:
Financial Goals : She needs to invest in mutual funds or bonds to finance her vacation each year, as e can see in July, she do not have amount to finance her vacation, cumulative fig is negative.
Similarly , she needs to take care of her future, after retirement what she is having in her hands. So, an yearly investment of some amount to be invested regularly on permanenet basis to meet out the expenses when she will get retired.
Also, she might be marrying in few years, so that needs an extra money , as wedding would be very heavy on pockets. Again here she can take risky bets to get the lumpsum amount in any particular year.
ANNUAL CASH BUDGET BY MONTH Name(s) Brooke Stauffer For the year Ending December 31, 2018 INCOME Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Total Take-home pay 3200 3200 3200 3200 3200 3200 3200 3200 3200 3200 3200 3200 38400 [1] Total Income 3200 3200 3200 3200 3200 3200 3200 3200 3200 3200 3200 3200 38400 EXPENDITURES Rent 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 1000 12000 Gas & electricity 94.5 94.5 94.5 94.5 94.5 94.5 94.5 94.5 94.5 94.5 94.5 94.5 1134 Phone 55 55 55 55 55 55 55 55 55 55 55 55 660 Cable TV 41.67 41.67 41.67 41.67 41.67 41.67 41.67 41.67 41.67 41.67 41.67 41.67 500 Groceries 218.75 218.75 218.75 218.75 218.75 218.75 218.75 218.75 218.75 218.75 218.75 218.75 2625 Dining out 216.67 216.67 216.67 216.67 216.67 216.67 216.67 216.67 216.67 216.67 216.67 216.67 2600 Auto loan payments 320 320 320 320 320 320 320 320 320 320 320 320 3840 Car expenses (gas, repairs, and fees) 136.5 136.5 136.5 136.5 136.5 136.5 136.5 136.5 136.5 136.5 136.5 136.5 1638 Medical care, dentist 10 10 45 10 10 10 10 10 45 10 10 10 190 Clothing 187.5 187.5 187.5 187.5 187.5 187.5 187.5 187.5 187.5 187.5 187.5 187.5 2250 Auto insurance 973.875 973.875 1947.75 Installment loan for stereo 45 45 45 45 45 45 45 45 45 45 45 45 540 Personal care 35.33 35.33 35.33 35.33 35.33 35.33 35.33 35.33 35.33 35.33 35.33 35.33 424 Vacation 2100 2100 Other recreation & entertainment 241.67 241.67 241.67 241.67 241.67 241.67 241.67 241.67 241.67 241.67 241.67 241.67 2900 Appliance purchases 45 45 45 45 45 45 45 45 45 45 45 45 540 Miscellaneous expenses 50 270 50 50 50 50 50 50 50 50 50 50 820 Credit card payments 75 75 75 75 75 75 450 Roth IRA contributions 0 [2] Total Expenditures 2772.59 2992.59 2807.59 2772.59 2772.59 3746.465 4797.59 2697.59 2732.59 2697.59 2697.59 3671.465 37158.83 MONTHLY CASH SURPLUSES (DEFICIT) [1-2] 427.41 207.41 392.41 427.41 427.41 -546.465 -1597.59 502.41 467.41 502.41 502.41 -471.465 1241.17 CUMULATIVE CASH SURPLUS (DEFICIT) 427.41 634.82 1027.23 1454.64 1882.05 1335.585 -262.005 240.405 707.815 1210.225 1712.635 1241.17 11611.98Related Questions
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