Case Study: Jane Jane wants to purchase a car. She has savings of $5,000 and wants to borrow another $3000 to purchase a car. She will soon be celebrating her 18th birthday. Her parents are prepared to lend her the money on the proviso that she needs to pay for all associated expenses including, registration, petrol, services and insurance. Jane is also to pay back the loan at $20 per week. According to her parents, Jane’s income is for her own use. In other words she uses it to run her car and for entertainment. Her parents will provide for all other expenses (food, clothing, education) REQUIRED 1. Set up a data file for Jane 2. Set up a Bank Account for Jane with a balance of $5000 3. Set up a loan account for Jane (borrowing from parents) 4. Set up a budget to enable Jane to run her car 5. Find out using the Loan Calculator what Jane’s repayments would be if she borrows the $3000 from a bank at 8% interest over 3 years. How much does Jane save by borrowing ‘interest free’ from her parents? Should her parents apply interest? 6. Enter the details of the incomes and expenses for January into Jane’s bank account 7. Check the income and expenses report and graph for January 8. Check the net worth for Jane 9. Compare the actual income and expenses for January against Jane’s budget. 1. Open a file for Jane
On menu bar, File, New. In the box, click on New Quicken File. OK In the box for File name, key in Jane. Use the pull down list to select the location for the file to be saved (if the location shown is to be altered). If you wish students to have their work identified, get them to add their initials or name to this file.
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Click ‘categories’ and select ‘standard categories’. Click OK and you will get this screen enabling accounts to be set up. If it does not automatically come up, then Click File, New, New Quicken Account.
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Setting Up a Bank Account for Jane
Make sure the above screen ‘Choose the type of account to create’ has the dot in ‘Chequing’. Now click Next. Enter the name of account – Jane’s Bank Account – and - select the name of institution – Commonwealth Bank – Click Next Click through to date – enter date for beginning of file 01/12/07. Key in the ending balance on the statement of $5000. Click on Done. You will get this screen
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Set up a loan account for Jane (borrowing from parents)
Access this screen and place the dot in Liability. You can access it from File, New, New Quicken Account, OK.
Then click on next Account Name is Car Loan. Click Next Click Next on each screen until you get to the screen below and complete the details from this screen.
Click Next and you will now get this summary screen. Check details are correct and Click Done.
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Answer NO to the question ‘would you like to set up an amortised loan to be associated with this account? You will now get this screen
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Set up a budget to enable Jane to run her car
Jane now has $8,000 ($5,000 from her savings and $3,000 borrowed from her parents). She has been advised to set up a budget to help her with the running of the car once she purchases it. At this stage there is a car advertised for $8000 and she is very interested. As mentioned previously, Jane has received the loan from her parents on the proviso she runs the car from her own resources. Here are the budget items and amounts that need to be set up INCOME Salary $400 per month except in school holidays where Jane will earn $1000 in January, $600 in April, $600 in July and $600 in September EXPENSES Petrol $120 per month Entertainment $180 per month Car Service –$300 payable in June Car Registration $560 payable in April Insurance $400 payable in January assuming car purchased in January TRANSFERS Car Loan $80 per month From Jane’s Bank Account $80 per month
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To set up the Budget, go to Planning on the menu bar and access Budgeting. You will get this screen. Press OK.
To ensure the Budget is set for a calendar year, go to Edit, Options, Quicken Program (see screen below)
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Click on Setting and make sure the dot is alongside ‘calendar year’. Go back to the Budget screen to set up the ‘Categories’ and insert the amounts for each month. Click on the Categories button (just below the word Budget) and place a tick alongside the INCOME and EXPENSE categories listed above. See screen below.
Once you have ticked all the listed categories, you should get this screen (next page). Refer to previous pages INCOME, EXPENSES, TRANSFERS. Please note that the word insurance is included with registration and as a separate item. The insurance paid with registration and included in the fee is the 3rd. party compulsory insurance, whereas the insurance to be paid by Jane in January is not compulsory but is know as 3rd. party property. Please note that the program has placed the items under headings. If you do not agree with these placements you can rearrange by placing the cursor on the item and dragging and dropping to the appropriate place. For example, place the cursor and drag ‘To Car Loan’ to the Mandatory section. You will now get this screen
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Please note that if you find you do not like the names of items in the Categories, you can easily set your own. Go to Finance on the menu and access Category and Transfer List and click on New and complete the table. Now insert the amounts in January as indicated above. For amounts that are to be the same each month you can copy across. For example, insert Entertainment amount of $180, Loan to Parents of $80 and From Jane’s Bank Account of $80 in January and then go to Edit, Fill Columns and you will get this screen.
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Click on Yes to get this screen.
Now complete the amounts for all other items and you should get this screen.
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As you can see from the above screen, Jane will have $1140 in her Bank account at the end of the year provided he sticks to her budget. We are assuming of course that she pays $8,000 for her car with $3,000 of this coming from his parents and $5000 coming from his previous savings. Is Jane’s budget realistic? Lets now look at the issue from her parents’ perspective 5. Find out using the Loan Calculator what Jane’s repayments would be if she borrowed the $3000 from a bank at 8% interest over 3 years. How much does Jane save by borrowing ‘interest free’ from her parents? Should her parents apply interest?
Go to Planning on the menu, Financial Calculators, Loans. See screen below
Complete the Loan Calculator (see below) and you will see that at 8% interest, Jane would be paying $94.01 per month. This represents an additional $14 per month or $504 over 3 years. What does this mean for Jane’s parents? Should they be charging interest to Jane?
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6. Enter the details of the incomes and expenses for November into Jane’s bank account Go to Finance on the menu bar and click on Account List. Double click on Jane’s Bank account to open the register. Process the transactions, including a category for each transaction. Click on Enter after each transaction. You will need to use the budget categories when categorizing each transaction.
Date
Details Jan 1 Drew cash for Entertainment $300 Filled car with petrol $80 2 Received Pay cheque $250 2 Paid Car Insurance $400 10 Received pay cheque $250 Filled car with petrol $80 11 Drew Cash for Entertainment $300 12 Filled car with petrol $60 18 Received Pay cheque $250 23 Paid monthly car loan instalment of $80 to parents. Click Transfer at the top of the register and 27 Filled car with petrol $60 28 Received pay cheque of $250
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When processing transactions, begin with the date and tab to the next column. Make sure you categorise each transaction. Use the same categories as per budget, so you can compare later against the budget. At the conclusion of the transactions you screen should look like this (below).
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7. Check the income and expenses report and graph for January Go to Reports on the menu bar and access ‘Easy Answer Reports and Graphs – What did I spend my money on during the period. Adjust down arrow to ‘Include all Dates’. Show Report. Adjust the dates (Jan 1 - Jan 30) and click update to see the monthly report (screen below)
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To see this in Graph, click Show Graph
Now double click on Expenses to see a bar chart of monthly expenses (screen below)
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8. Check the net worth for Jane Go to Reports, Easy answer reports and graphs, and highlight ‘What am I worth’. Include all dates and Show Report. Change the date range (Jan 1 to Jan 31) and you will get this screen.
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9. Compare the actual income and expenses for January against Jane’s budget. On menu bar, click on Reports, Easy answer reports and graphs. To view the budget versus actual, select did I meet my budget? Adjust the dates to get the month required. Click Customise and Create Report. You should get this screen.
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