Bus 40 Personal Finance Name:________________ Lesson 6 FINANCIAL PLANNING PROBLEMS 1. Louise McIntyre’s monthly gross income is $2,000. Her employer withholds $400 in federal, state, and local income taxes and $160 in Social Security taxes per month. Louise contributes $80 per month for her IRA. Her monthly credit payments for VISA, MasterCard, and Discover card are $35, $30, and $20, respectively. Her monthly payment on an automobile loan is $285. What is Louise’s debt payments-to-income ratio? Is Louise living within her means? Louise’s Gross Income = $2,000 Less: Income taxes = -400 Less: Social Security Tax = -160 Less: IRA contribution = -80 Net take-home pay = $1,360 2. Fred Reinero has had a student loan, two auto loans, and three credit cards. He has always made timely payments on all obligations. He has a savings account of $2,400 and an annual income of $25,000. His current payments for rent, insurance, and utilities are about $1,100 per month. Fred has accumulated $12,80 0 in an individual retirement account. Fred’s loan application asks for $10,000 to start up a small restaurant with some friends. Fred will not be an active manager; his partner will run the restaurant. Will he get the loan? Explain your answer. 3. A few years ago, Michael Tucker purchased a home for $100,000. Today, the home is worth $150,000. His remaining mortgage balance is $50,000. Assuming that Michael can borrow up to 80 percent of the market value, what is the maximum amount he can borrow? 4. Calculating Debt Payments – to - Income Ratio. Suppose that your monthly net income is $2,400. Your monthly debt payments include your student loan payment, a gas credit card and they total $360. What is your debt payments – to – income ratio? 5. Credit Reduces Future Income. The disposable income from your part-time job in 2010 and 2011 is $12,000. In 2010, you borrowed $500 at 18 percent interest. You repay your loan with interest in 2011. How much would you have available for spending in 2011?