FORM B Name:_______________________
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
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: www.bankrate.com
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
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
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
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
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
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
Monthly Budget Flow Chart
Income Monthly Budget Summary
Job Total Income
Total Income Net
Home Expenses Daily Living
Homeowner's Insurance Dining/Eating out
Gas/Oil Total Living Expenses
Cable / Internet
Total Home Expenses Savings
Transfer to Savings
Transportation Total Savings
Total Transportation School Loans
YOU NEED TO USE www.bankrate.com for Part B. Go to the following website for the
mortgage calculator: http://www.bankrate.com/calculators/mortgages/mortgage-
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.