Since the major portion of Pam’s income is based on commission, her earnings vary from one month to the next.

Life Situation	Financial Data
Single Age 22 Starting a career No dependents	Monthly income	$2,600
	Living expenses	$2,180
	Assets	$8,200
	Liabilities	$3,470
	Emergency fund	$530

Since the major portion of Pam’s income is based on commission, her earnings vary from one month to the next. This situation makes it difficult for her to establish a realistic budget. During lean months, she has had to resort to using her credit card to make ends meet. In fact, her credit card debt, $3,470, is at a fairly high level. In addition, she has not been able to save much for various unexpected expenses and for her long-term financial security.

During the year, Pam has had tax withholding greater than her actual tax liability. As a result, Pam is expecting a fairly large tax refund. In the past, she has always used tax refunds to finance major purchases (a vacation or furniture) or pay off credit card debt. Currently, she is also considering saving some of the money.

Questions

Q1. How might Pam budget for fluctuations in her income caused by commission earnings?
Q2. What are financial actions and revised goals Pam might want to consider at this time?
Q3. Assume Pam's federal tax refund is $1,100. Given her current situation, what should she do with the refund?
Q4. Based on her current and future life situation, what tax planning activities might Pam consider?

Expert Solution

Q1. How might Pam budget for fluctuations in her income caused by commission earnings?

Q2. What are financial actions and revised goals Pam might want to consider at this time?

ekkarill92 answered 2 years ago

Can we really compare tax rates since the individuals rate can vary based on income level?

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