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.

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 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.

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

$

$

$

$

$

$

$

$

$

$

$

$

$

[1] Total Income

$

$

$

$

$

$

$

$

$

$

$

$

$

EXPENDITURES

Rent

$

$

$

$

$

$

$

$

$

$

$

$

$

Gas & electricity

$

$

$

$

$

$

$

$

$

$

$

$

$

Phone

$

$

$

$

$

$

$

$

$

$

$

$

$

Cable TV

$

$

$

$

$

$

$

$

$

$

$

$

$

Groceries

$

$

$

$

$

$

$

$

$

$

$

$

$

Dining out

$

$

$

$

$

$

$

$

$

$

$

$

$

Auto loan payments

$

$

$

$

$

$

$

$

$

$

$

$

$

Car expenses (gas, repairs, and fees)

$

$

$

$

$

$

$

$

$

$

$

$

$

Medical care, dentist

$

$

$

$

$

$

$

$

$

$

$

$

$

Clothing

$

$

$

$

$

$

$

$

$

$

$

$

$

Auto insurance

$

$

$

Installment loan for stereo

$

$

$

$

$

$

$

$

$

$

$

$

$

Personal care

$

$

$

$

$

$

$

$

$

$

$

$

$

Vacation

$

$

Other recreation & entertainment

$

$

$

$

$

$

$

$

$

$

$

$

$

Appliance purchases

$

$

$

$

$

$

$

$

$

$

$

$

$

Miscellaneous expenses

$

$

$

$

$

$

$

$

$

$

$

$

$

Credit card payments

$

$

$

$

$

$

$

Roth IRA contributions

[2] Total Expenditures

$

$

$

$

$

$

$

$

$

$

$

$

$

MONTHLY CASH SURPLUSES (DEFICIT) [1-2]

$

$

$

$

$

$

$

$

$

$

$

$

CUMULATIVE CASH SURPLUS (DEFICIT)

$

$

$

$

$

$

$

$

$

$

$

$

$

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.

Answer 1

Soln : Please refer here the table for the year 2018:

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	11611.98

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.