provides you a spreadsheet framework to quantify the Davidsons monthly inflow and outflow.

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 Garys employer, they would need totripletheir current 401-kcontributions.

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 dont have enough money set aside for family savings in the categories ofemergency, Christmas,medical, orvacation.

In reality, theDavidsons 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 yourhelp!

Build a status quo budget for the Davidsons (from the Student Templatefirst tab). 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.

Analysis:

1. Each month Garys 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 Garys 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.

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 homeowners 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 Davidsons are a two-vehicle family. They own an older mini-van that is paid for, but recently purchased a brand-new Ford F-150 4x4. 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 companys health insurance package) and $47.82 (their quarterly life insurance premium).

Upon completing your status quo budget, use the Suggested Budget spreadsheet (second tab) to modify the quantities so you can get the net monthly cash flow to zero and achieve as many of the goals as possible from the Before You Begin section above. You can do this by trimming and consolidating expenses and possibly recommending some realistic ways to increase income.

Help the Davidsons make a new budget action plan, print it out, and answer 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, homeowners 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:

Discussion:

1. What do you think about the homeowners total percentage mentioned in #2 of the

Analysis? Do a little research, what do financial experts recommend as a maximum percentage?

2. How do you feel about the total vehicle expense percentage in #3 of the Analysis? How would you determine the line between affordable and not affordable in terms of a vehicle? Explain.

3. Reflect on the personal impressions you had as you put together the Davidsons original budget and how this activity might impact your future financial decisions.

Answer rating: 100% (QA)

Lets start by organizing the Davidsons finances into a spreadsheet to understand their current month... View the full answer