What was the original (status quo) net monthly cash flow for the Davidsons?
Discussion: Analyzing the Davidson’s Family Budget
This week in section 4A we completed the Davidson’s Family budget. For the discussion this week, I want to share your findings.
To complete your discussion you must first complete the budget in Lecture Notes 4A. Then address the following:
1. What was the original (status quo) net monthly cash flow for the Davidsons?
2. What percent of their monthly gross income is dedicated to the combination of their mortgage, homeowner’s insurance, and county property taxes? What do financial experts recommend as a maximum percentage?
3. What percent of their monthly gross income is dedicated to vehicle expenses?
4. List some of your creative but realistic recommended changes to their budget.
5. Reflect on the personal impressions you had as you put together the Davidson’s original budget and how this activity might impact your future financial decisions.
Requirements: 1 day
Before you begin: Review the key principles in unit 4A of your textbook regarding the importance of taking control of your finances. Also, carefully read the following brief background description of the Davidson family before starting into the project. Gary and Michelle Davidson currently have 2 children (ages 9 and 7) and a golden retriever dog. Gary works as a manager at a local manufacturing plant. His current annual salary is $59,400. They have barely started saving for retirement and are not receiving full matching funds from the company for their 401-k. To qualify for the maximum matching funds from Gary’s employer, they would need to triple their current 401-k contributions. They tend to spend more than they make each month but are not sure how much more. They feel like they have too much credit card debt, and don’t have enough money set aside for family savings in the categories of emergency, Christmas, medical, or vacation. In reality, the Davidsons feel like they are not sure where the money seems to be going and would like to start a monthly budget action plan. In summary, they need your help! Download Spreadsheet: “BudgetActionPlan_Template.xls” which provides you a spreadsheet framework to quantify the Davidson’s monthly inflow and outflow. The formulas are already set up and you will be able to use the template to help the Davidson’s balance their monthly budget, helping them achieve their financial goals. Procedure: Build a “status quo” budget for the Davidsons and make a hard copy. That is, find out the status of their current net monthly cash flow. Read the detailed information about their finances and enter the prorated monthly amounts into the categories of income, payroll deductions, savings, and expenses. Make sure each amount is an accurate monthly reflection of their financial situation. Note: there may be more information than you will use and the items may not necessarily match the order of the spreadsheet. Be sure to proofread afterwards. 1. Each month Gary’s payroll deductions include $367.45 for federal income tax, $162.50 for state income tax, and $378.68 for their FICA (Social Security and Medicare) tax. Currently $34.17 is being deducted and deposited into the Gary’s 401-k. 2. Probably one of the biggest concerns for the Davidsons right now is getting on top of the credit-card debt. Their current MasterCard balance of $4,730 is being assessed an 18% APR finance charge and they have a minimum payment of $95 monthly. They are hoping to pay off their debt within two years but this would require that they increase their monthly credit card payment to at least $236.14 to meet their goal. UNIT 4A TAKING CARE OF YOUR FINANCES
3. The family bought a home 5 years ago for $250,000. Their loan is for 30 years at a fixed rate of 6% APR and their monthly payment is $1,349. To safeguard against theft, fire, and other calamities, they carry homeowner’s insurance with an annual premium of $984. They are insuring their home with a different company than their vehicle insurance company and hope to combine both types of policies with the same insurer to save 15% on premiums. The Davidsons pay $675 every six months for county property taxes on their home and lot. 4. They currently pay a monthly cable TV bill of $65.49, a landline phone bill of $32.50, an Internet provider bill of $43.68, and a cell phone bill of $109.45. Their utility bills for electricity, natural gas, and water/sewer/garbage are $39.56, $89.75, and $53.49 respectively. 5. The Davidson’s are a two-vehicle family. They own an older mini-van that is paid for, but recently purchased a brand new Ford F-150 4×4. They had to borrow just under $30,000 at a 7% APR, which resulted in a $586 monthly payment. They have estimated that they spend about $360 per year on vehicle maintenance and their vehicle insurance premium is $468 every six months. Lately, they have been averaging about $150 per month on gasoline for the van and truck combined. 6. Because the family rarely plans out their weekly meals or uses coupons $635 is a typical monthly average on groceries. They eat out quite often and spend about $125 at restaurants. Both Gary and Michelle belong to a local health club and spend $48 per month on membership dues, their clothing expenditures average about $90 for the family, entertainment is $65, household supplies about $35, miscellaneous items $70, and their monthly dog food and vet bills for their golden retriever average about $42. They also pay approximately $60 to various charities each month. 7. Finally, the Davidsons are doing their best to protect the family with health and life insurance policies. Currently they pay $197.89 (their monthly share of the company’s health insurance package) and $47.82 (their quarterly life insurance premium). Analysis: 1. What was the original (status quo) net monthly cash flow for the Davidsons? 2. What percent of their monthly gross income is dedicated to the combination of their mortgage, homeowner’s insurance, and county property taxes? 3. What percent of their monthly gross income is dedicated to vehicle expenses 4. List some of your creative but realistic recommended changes to their budget
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