Question: Brooke Stauffer recently graduated from college and
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 2016, she was having trouble fully paying all his 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 2016:
Item
Annual Expenditure
Rent
$12,000
Auto insurance
1,855
Auto loan payments
3,840
Auto expenses (gas, repairs, and fees)
1,560
Clothing
3,200
Installment loan for stereo
540
Personal care
424
Phone
600
Cable TV
440
Gas and electricity
1,080
Medical care
120
Dentist
70
Groceries
2,500
Dining out
2,600
Furniture purchases
1,200
Recreation and entertainment
2,900
Other expenses
600
After reviewing his 2016 expenses, Brooke made the following assumptions about her expenses for 2017:
1. All expenses will remain at the same levels, with these exceptions:
a. Auto insurance, auto expenses, gas and electricity, and groceries will increase 5 percent.
b. Clothing purchases will decrease to $2,250.
c. Phone and cable TV will increase $5 per month.
d. Furniture purchases will decrease to $660, most of which is for a new television.
e. She will take a one-week vacation to Colorado in July, at a cost of $2,100.
2. All expenses will be budgeted in equal monthly installments except for the vacation and these items:
a. Auto insurance is paid in two installments due in June and December.
b. She plans to replace the brakes on her car in February, at a cost of $220.
c. Visits to the dentist will be made in March and September.
3. She will eliminate her bank credit card balance by making extra monthly payments of $75 during each of the first six months.
4. Regarding her income, Brooke has just received a small raise, so her take-home pay will be $3,200 per month.
Required:
1. a. Prepare a preliminary cash budget for Brooke for the year ending December 31, 2016, using the format shown in Worksheet 2.3.
b. Compare Brooke’s estimated expenses with his expected income and make recommendations that will help him balance her budget.
2. Make any necessary adjustments to Brooke’s estimated monthly expenses, and revise her annual cash budget for the year ending December 31, 2016, using Worksheet 2.3.
3. 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.
Worksheet 2.3:
Transcribed Image Text:
ANNUAL CASH BUDGET BY MONTH Namels) simon and Meghan Kang For the Year Ended December 31, 2017 Total for Jan. Feb. Mar. April May June July Aug. Sep. Oct. Nov. Dec. the Year INCOME Take-home pay #4,800 44,800 $4,800 $4,800 $4,800 $5,200 #5,200 $5,200 $5,200 $5,200 $5,200 $5,200 $60,400 Bonuses and commissions 1,350 1,300 2,650 Pensions and annuities Investment income 50 50 50 50 200 Other income (1) Total Income $4,800 4,800 $4,850 $4,800 44,800| 46,6o0| #5,200| #5,200| 45,250| $5,200| 45,20이 46,550| 463,250 EXPENSES Housing (rent/mortgage, repairs) $1,185 $1,485 $1,185 $1,185 $1,185 $1,185 $1,185 #1,185 $1,185 $1,185 $1,185 $1,185 $14,520 Utilities (phone, elec., gas, water) 245 245 245 175 180 205 195 230 250 2,650 205 230 245 Food (home and away) 696 696 1,200 696 696 696 696 696 696 696 696 696 8,856 Transportation (auto/public) 375 620 375 355 375 375 575 375 375 425 375 375 4,975 Medical/dental, incl. insurance 625 50 50 50 50 50 75 50 50 50 50 50 50 Clothing 150 150 670 200 200 200 300 GO0 200 300 300 3,570 Activate Windo Go to PE set to 300 Insurance (life, auto, home) 660 1,598 660 4,516 Taxes (property) 550 550 1,100 Appliances, furniture, and other (purchases/loans) 60 60 60 60 60 60 60 60 60 60 60 60 720 Personal care 100 100 100 100 100 100 100 100 100 100 100 100 1,200 Recreation and entertainment 250 300 3,200 200 200 400 300 200 200 200 200 2,050 アプ00 Savings and investments 575 575 575 575 575 575 575 575 575 575 575 575 6,900 Other expenses 135 200 エア5 510 180 135 2,805 135 235 235 135 405 325 Fun money 230 2,390 200 200 230 130 200 200 200 200 200 200 200 (II) Total Expenses $4,021 #5,231 $8,065 *4,521 #5929| #4,251 +4,406 $5,071 #4,081 #4,781 $5974 #6,196| $62,527 CASH SURPLUS (OR DEFICIT) [(1)-(II)] キアア9|(キ431)|(キ3,215) #279 (#1,129)| #2,349 キ794 #129 $1,169 キ419|| (アア4) $354 キア23 CUMULATIVE CASH SURPLUS (OR DEFICIT) キアラ $348 ($2,867)| (#2,588) ($3,717) ($1,368)| (*574) ($445) $724 $1,143 $369 キア23 キア23
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