Monthly Budget Flow Chart by liaoqinmei


									FORM B                                                       Name:_______________________
                                                                       Section: ___________
                                                                          Z-ID ___________

                                             Math 101
                                          Financial Project
                                            Spring 2012


Read these directions carefully!

When was the last time you looked over your financial records? How many of you actually have a
budget? The goal of this project is help you prepare your own budget by analyzing a fictional
character’s finances.

While working on this project, your instructor and TAs will give limited assistance. It is at their
discretion how much help they can offer. You may also seek other sources of help such as other
students, friends, etc.

Once you complete the project, double and triple check your answers. Once you give us your project
to look over, it is officially submitted for grading.

We will use the following website to calculate loan payments:

We use budgets to keep our finances in check. The project should teach you the steps to create your
own budget including how to budget a savings account. The sooner you begin a budget, the better
chance you have of keeping debt and financial frustration low.

Our first task is to look at a monthly cash flow chart and use that to begin a budget. A monthly cash
flow chart is used to keep track of where money is coming from (income) and where money is going
(spending and bills). Another good use for a cash flow chart is to locate any extra cash you have
available as well as making adjustments to your spending so you never spend more than you make.
Part A: You are to track Tim’s monthly cash flow. You are to answer a series of questions.
Please answer the questions in the given space provided.

   1. [0.5 point] Tim’s salary is $38,000 a year. This is his gross yearly salary; his salary before
      taxes is deducted. What is his gross monthly income?


   2. [0.5 point] Suppose 25% of his salary is taken out for taxes. How much tax does Tim pay
      each month?


   3. [0.5 point] Compute Tim’s monthly take-home pay. This is his net pay; the actual amount
      available to Tim from his paycheck.


   Tim decides it’s time to buy a house. Buying a house depends on many factors such as
   interest rates, length of the loan, down-payment, your credit worthiness, etc. Typically your
   monthly mortgage payment accounts for 30% of your gross monthly income. We have two
   scenarios to consider:

   He finds a house for $140,000. Tim can afford a down-payment of $8,000.

   4. [0.5 point] What is the size of the mortgage he needs to obtain from the bank to purchase his


   Scenario 1:
      a.     [1 point] If Tim has good credit, he will be able to finance the mortgage amount at 5%,
             compounded monthly for 30 years. How much will his monthly mortgage payment be?


      b.     [1 point] The bank also offers a different scenario: finance the mortgage amount at
             4.375%, compounded monthly for 15 years. How much will his monthly mortgage
             payment be?

Scenario 2:
       c.     [1 point] If Tim does not have good credit, he will be able to finance the mortgage
              amount at 7%, compounded monthly for 30 years. How much will his monthly
              mortgage payment be?


       d.     [1 point] The bank offers a different scenario where he finances the mortgage amount
              at 6.5%, compounded monthly for 15 years. How much will his monthly mortgage
              payment be?


   5. Tim does have good credit, so he decides to go with Scenario 1a. How much will his
      monthly mortgage payment be?


   6. [0.5 point] Property taxes are $3300 a year. The bank will spread this amount over 12
      months and include it into your monthly mortgage payment. This is called ESCROW. How
      much is Tim’s escrow payment?


   7. [0.5 point] Now that you bought your own home, you need to protect it. You purchase
      homeowner’s insurance, which is a yearly charge of $300. You budget for monthly
      payments. How much is your monthly homeowner’s payment?


   8. [0.5 point] Water, electricity, trash pickup, and natural gas are other expenses that cost
      additional money each month. Tim spends $30 per month for water and trash, $60 per month
      for electricity, and $44 per month for natural gas. How much does he spend total for these


   9. Tim’s cell phone bill is $45 a month.
10. TV service and internet costs $90 a month.

11. [1 point] A general rule for savings is you should save at least 8% of your take-home income.
    Tim decides to save 4% of his take-home income. How much is he putting towards his
    savings each month?


12. [3 points] Another rule of thumb is you should have at least 3 months worth of your take-
    home income in your savings incase you lose your job or an emergency occurs. How much is
    3 months worth of take-home income?

                                 3 months worth of take-home income: $____________

13. Let’s not forget about food. After a month of tracking his food spending, he finds he spends
    $70 on restaurants and $200 on groceries.

14. [1 point] Tim borrows $8,000 to buy a car and have it paid off in 6 years. Since he does not
    have good credit, he finances the car at 4.5%. What is his monthly car payment?


15. [0.5 point] Now that you have a car, you have to purchase car insurance. You buy a policy
    that costs $900 per year. You pay your insurance bill monthly. What is his monthly car
    insurance payment?


16. You can’t drive your car without purchasing gas. After tracking a month’s worth of spending,
    Tim finds he spends $95 a month in gas.

17. Tim finds he spends $40 a month on new clothes and $100 a month on entertainment.

18. Tim also has some credit debt. He currently spends $75 per month on his credit cards.

19. After graduating from college, Tim started paying back his student loans. His monthly
    student loan payment is $120 per month.
    20. Fill in Tim’s monthly budget flow chart. Make sure your income available after expenses is
        the same as

[5 points]
                        Monthly Budget Flow Chart

 Income                                            Monthly Budget Summary
 Job                                               Total Income
                                                   Total Expenses
 Total Income                                      Net

 Home Expenses                                     Daily Living
 Mortgage                                          Groceries
 Escrow                                            Clothing
 Homeowner's Insurance                             Dining/Eating out
 Electricity                                       Entertainment
 Gas/Oil                                           Total Living Expenses
 Cable / Internet
 Total Home Expenses                               Savings
                                                   Transfer to Savings

 Transportation                                    Total Savings
 Car Payment
 Car Insurance
 Fuel                                              Obligations
 Total Transportation                              School Loans
                                                   Credit Cards
                                                   Total Obligations
Part B:

YOU NEED TO USE for Part B. Go to the following website for the
mortgage calculator:

   21. [1 point] Regarding Tim’s mortgage: If Tim pays his monthly mortgage payment for the
       entire 30 years, how much does Tim pay in interest?


   22. [3 points] Suppose Tim takes $50 from his available income after expenses (from Question
       20) and adds that amount to his mortgage payment every month. Assuming this is the amount
       he will apply to every mortgage payment, how much money does he save in interest? How
       does this extra amount affect the length of the loan?

      How much does he spend in interest?                              $__________________

      How much does he save in interest by making extra payments?      $__________________

      How many months are taken off the length of the loan?             _________ months
 [3 points] After answering these questions, write a reflection on what you have learned
(investigated). You may also reflect on your own finances. Some of you may have other expenses
that were not included here, such as pets, children, subscriptions, medicine, health bills, etc. Is Tim
in a good position financially? Explain.

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