Question

CASE STUDY 1

Ann is 20 years old and has been working as a graphic designer for 3 years. She earns $35,000 per year in salary after tax. Because her family lives in a country town. Ann had to leave home to find employment and learn to look after herself and her finances.

She shares a flat with 2 friends and pays rent of $150 per week. She estimates that her other weekly expenses, on average, include public transport fares $45; food $120; utility bills $30; mobile phone $30; clothing $50; and miscellaneous expenses $60. She also makes sure that she is saving some of her income and for the past 2 years has arranged for an automatic debit of $300 per month from her bank account into a managed fund. The amount accumulated in the fund comprises the original $2500 she was given for her eighteenth birthday to start the fund and contributions and earnings of $7500, making a total sum of about $10,000. The managed fund is a balanced fund. Any money left over after expenses and investment is kept in her bank account, which totals $2000.

Ann’s main goal is to buy a car in the next 6 months if she can afford it. She will use some money in her managed fund if she has to, but hopes to buy a car valued at about $13000 plus insurance of $750 p.a. she is prepared to take on some extra work in a restaurant to earn another $150 per week in cash to help her to meet her goal.

1. Clearly state Ann’s short-term goal.
2. How would a financial counsellor help Ann to determine whether she may be on target to meet her goal?
3. Prepare a budget for Ann’s income and expenses to assist her to meet her objective.
4. Suggest some budgetary measures to help Ann accumulate her funds. Is there any other advice you may offer to help her achieve her goal?

Answer 1

Ann's short term goal : Buy a car valued at about $13000 plus insurance of $750 p.a., within next 6 months

Ann is on target to meet her goal. This can be seen based on the budget prepared below and workings subsequently.

Budget for income and expenses:

For the next 6 months:

Parameter	Linkage	$
Income from salary for next 6 months	A = Annual salary of 35,000 x 0.5	17,500.00
Expenses
Rent (150 per week for 26 weeks)	B	3,900.00
Other expenses (45+120+30+30+50+60) x 26	C	8,710.00
Total Expenses	D = B + C	12,610.00
Surplus	E = A - D	4,890.00
Opening balance in bank account	F	2,000.00
Accumulated balance in the managed fund	G	10,000.00
Likely balance at the end of 6 months	H = E + F + G	16,890.00
Cost of car	I	13,000.00
Insurance cost	J	750.00
Total cost	K = I + J	13,750.00

The likely balance at the end of 6 months > total cost of the car. Hence, She should be able to meet her short term goal.

Suggestion:

• She is doing well. She must continue to save through the auto debit to the managed funds
• She may take up the additional work at the restaurant to boost her savings. This way she will be able to fulfill her dreams earlier.
• She must maintain a discipline over her expenses.
• She can look at means to cut her expenses.