Question

Most financial planners agree there are four basic steps to managing personal finances. Those steps are:

1. Set goals

2. Take control of your finances

3. Evaluate alternatives

4. Implement, monitor, and revise

You have just completed the first step of setting short, medium, and long-term goals. Your car is getting older and less reliable, you really need a new one. You decide you want to set up an emergency fund so you don’t have to use your Visa card for unexpected expenses. In addition, you want to set up a savings account for a down payment on a new car. You want to have $900 in emergency funds and $600 saved toward your down payment within six months.

The next step of taking control of your finances seems a lot harder. To do this, you must separate needs from wants. You remember your mom getting really stressed out whenever she had to pay bills, and you want to avoid that. You keep all of your monthly bills and receipts in a shoebox. Which four expenses from last month most represent wants that you likely could have eliminated from your spending? Select all that apply.

a. $50 lunch at the new sushi restaurant on Main St.

b. An overdue $125 bill for your health insurance premium

c. $225 for leather cowboy boots you wore to a concert with a date

d. $60 electric bill

e. $100 monthly minimum payment on credit card

f. $75 for required English textbook

g. $500 for rent last month

h. Car repair bill for $188

i. $125 for cable bill (premium channels, internet, and gaming)

j. $95 for a ticket to see your favorite band

Answer 1

a. $50 lunch at the new sushi restaurent on Main St.

This is not an essential expenses. Lunch at the restaurent can be avoided and instead had at home. Hence, $50 could have been eliminated.

b. An overdue $125 bill for your health insurance premium

This is an essential expenses. Health insurance are important to meet the unforeseen medical expenses and the bill is overdue as well. Hence, $125 cannot be eliminated from the spending.

c. $225 for leather cowboy boots you wore to a concert with a date

This is not an essential expenses. Leather cowboy boots are luxury accessories which is also not of frequent use. Hence, $225 could have been eliminated.

d. $60 electric bill

This is an essential expenses. Electric bills are mandatory bills to be setlled. Hence, $60 cannot be eliminated from the spending.

e. $100 monthly minimum payment on credit card

This is an essential expenses. Minimum payment on credit cards are to be paid to ensure credit rating doesnt get impacted and also to avoid penal charges (interest, fines, etc). Hence, $100 cannot be eliminated from the spending.

f. $75 for required english textbook

This is an essential expenses. Engligh text books could be required to assist in education. . Hence, $75 cannot be eliminated from the spending.

g. $500 for rent last month

This is an essential expenses. Rent for the month are to be setlled to continue living in the house without any concerns.. Hence, $500 cannot be eliminated from the spending.

h. Car repair bill for $188

This is an essential expenses. Spend to repair the car is required to ensure availability of transportation at all times. Also, delaying to repair the car could further bring more damage to the car. Hence, $188 cannot be eliminated from the spending.

i. $125 for cable bill (premium channels, internet, and gaming).

This is not an essential expenses. Premium channels, internet, and gaming are luxury requirement which are not essential for the living. There will be no adverse impact to the general living if these are avoided. Hence, $125 could have been eliminated.

j. $95 for a ticket to see your favorite band

This is not an essential expenses. Ticket to see your favorite band is only a past-time activity which is done for entertainment purposes. Hence, $95 could have been eliminated.

Hence, the following four expenses could have been eliminated:

1. $50 lunch at the new sushi restaurent on Main St.

2. $225 for leather cowboy boots you wore to a concert with a date

3. $125 for cable bill (premium channels, internet, and gaming).

4. $95 for a ticket to see your favorite band

Thus, out of the total spend of $1,543 (50+125+225+60+100+75+500+188+125+95), four expenses that could have been avoided and eliminated aggregates to $495.