In order for Rachel to save enough money to open her food truck, she needs to...

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In order for Rachel to save enough money to open her food truck, she needs to know if she's allocating enough of her income towards savings. Rachel needs to itemize her expenses and determine how her debt compares to her savings and assets. Current Financial Situation Assets Income Checking account: $1,700 Gross monthly salary: $3,200 Savings account (regular/emergency): $4,200 Net monthly salary: $2,300 Car: $1,500 Liabilities Student loan: $2,200 Credit card balance: $600 Monthly expenses Rent: $300 Utilities: $105 Food: $115 Gas/car maintenance: $125 Credit card payment: $50 Entertainment Netflix/Hulu/theater tickets: $125 Note - Rachel puts $200 a month in her savings account. ? Using Exhibit 2-6: Typical After-Tax Budget Allocations for Different Life Situations, calculate the budget allocations for Rachel, using her Net Monthly Salary (or After-tax Salary) amount. For the categories of Housing, Transportation, Entertainment, and Savings, show the formula for the calculation and the resulting percentage. (Example Savings - a/b=c%) Is she within the recommended percentage for a student? Note - Rachel puts $200 a month in savings. A BIU X₂ X² S Budget Category Housing (Rent, Utilities) Transportation Entertainment and Recreation Savings I E E # ==== Recommendation % for Student 0-25% 5-10% 5-10% 0-10% HSP Rachel's Amount (show equation - a/b=c%) <> X Within recommended parameters? Yes/No !!! III Note: These calculations use after tax (Net Monthly Salary) amounts versus other ratios shown in the text that utilize gross monthly amounts. Last year Rachel made a bit more money but owed more on her loans. Her liabilities were $3,100 but her net worth was $5,200. Using the table found in Chapter 2 titled Figure It Out! Ratios for Evaluating Financial Progress (p. 57, 7th ed.), what was Rachel's debt ratio last year? Show your formula - a/b=c. A ration of 20% or higher is a cause for concern. Should Rachel be concerned? Explain. A BIU X₂ x² S I E E = = = W 8 HSP !!! !!! Budget Category Housing (rent or mortgage payment; utilities; furnishings and appliances) Transportation Food (at home and away from home) Clothing Personal and health care (including child care) Entertainment and recreation Reading and education Personal insurance and pension payments Gifts, donations, and contributions Savings Student 0-25% 5-10 15-20 5-12 3-5 5-10 10-30 0-5 4-6 0-10 Working Single (no dependents) 30-35% 15-20 15-25 5-15 3-5 5-10 2-4 4-8 5-8 4-15 Couple (children under 18) 25-35% 15-20 15-25 5-10 4-10 4-8 3-5 5-9 3-5 5-10 Single Parent (young children) 20-30% 10-18 13-20 5-10 8-12 4-8 3-5 5-9 3-5 5-8 Parents (children over 18 in college) 25-30% 12-18 15-20 4-8 4-6 6-10 6-12 4-7 4-8 2-4 Couple (over 55, no dependent children) 25-35% 10-18 18-25 4-8 6-12 5-8 2-4 6-8 3-5 3-5 Every month last year, Rachel put $175 in her regular savings account and $25 in her emergency savings account. Her gross monthly salary was $3,200. Using the table found in Chapter 2 titled Figure It Out! Ratios for Evaluating Financial Progress (p. 57, 7th ed.), what is Rachel's savings ratio? Show your formula - a/b=c. Financial experts suggest the that you should deposit in to savings each month between 5% and 10% of your gross income amount. Using this suggestion, is Rachel saving enough? Ratios for Evaluating Financial Progress Financial ratios are used to measure changes in your financial situation. These relationships indicate progress toward an improved financial position. Ratio Debt ratio Current ratio Liquidity ratio Debt-payments ratio Savings ratio Calculation Liabilities divided by net worth Liquid assets divided by current liabilities Liquid assets divided by monthly expenses Monthly credit payments divided by take-home pay Amount saved each month divided by gross income Example $25,000/$50,000 = 0.5 $4,000/$2,000 = 2 $10,000/$4,000 = 2.5 $540/$3,600 = 0.15 $648/$5,400 = 0.12 Interpretation Shows relationship between debt and net worth; a low debt ratio is best. Indicates $2 in liquid assets for every $1 of current liabilities; a high current ratio is desirable to have cash available to pay bills. Indicates the number of months in which living expenses can be paid if an emergency arises; a high liquidity ratio is desirable. Indicates how much of a person's earnings goes for debt payments (excluding a home mort- gage); most financial advisors recommend a debt-payments ratio of less than 20 percent. Financial experts recommend monthly savings of 5-10 percent. 57 Go C □ In order for Rachel to save enough money to open her food truck, she needs to know if she's allocating enough of her income towards savings. Rachel needs to itemize her expenses and determine how her debt compares to her savings and assets. Current Financial Situation Assets Income Checking account: $1,700 Gross monthly salary: $3,200 Savings account (regular/emergency): $4,200 Net monthly salary: $2,300 Car: $1,500 Liabilities Student loan: $2,200 Credit card balance: $600 Monthly expenses Rent: $300 Utilities: $105 Food: $115 Gas/car maintenance: $125 Credit card payment: $50 Entertainment Netflix/Hulu/theater tickets: $125 Note - Rachel puts $200 a month in her savings account. ? Using Exhibit 2-6: Typical After-Tax Budget Allocations for Different Life Situations, calculate the budget allocations for Rachel, using her Net Monthly Salary (or After-tax Salary) amount. For the categories of Housing, Transportation, Entertainment, and Savings, show the formula for the calculation and the resulting percentage. (Example Savings - a/b=c%) Is she within the recommended percentage for a student? Note - Rachel puts $200 a month in savings. A BIU X₂ X² S Budget Category Housing (Rent, Utilities) Transportation Entertainment and Recreation Savings I E E # ==== Recommendation % for Student 0-25% 5-10% 5-10% 0-10% HSP Rachel's Amount (show equation - a/b=c%) <> X Within recommended parameters? Yes/No !!! III Note: These calculations use after tax (Net Monthly Salary) amounts versus other ratios shown in the text that utilize gross monthly amounts. Last year Rachel made a bit more money but owed more on her loans. Her liabilities were $3,100 but her net worth was $5,200. Using the table found in Chapter 2 titled Figure It Out! Ratios for Evaluating Financial Progress (p. 57, 7th ed.), what was Rachel's debt ratio last year? Show your formula - a/b=c. A ration of 20% or higher is a cause for concern. Should Rachel be concerned? Explain. A BIU X₂ x² S I E E = = = W 8 HSP !!! !!! Budget Category Housing (rent or mortgage payment; utilities; furnishings and appliances) Transportation Food (at home and away from home) Clothing Personal and health care (including child care) Entertainment and recreation Reading and education Personal insurance and pension payments Gifts, donations, and contributions Savings Student 0-25% 5-10 15-20 5-12 3-5 5-10 10-30 0-5 4-6 0-10 Working Single (no dependents) 30-35% 15-20 15-25 5-15 3-5 5-10 2-4 4-8 5-8 4-15 Couple (children under 18) 25-35% 15-20 15-25 5-10 4-10 4-8 3-5 5-9 3-5 5-10 Single Parent (young children) 20-30% 10-18 13-20 5-10 8-12 4-8 3-5 5-9 3-5 5-8 Parents (children over 18 in college) 25-30% 12-18 15-20 4-8 4-6 6-10 6-12 4-7 4-8 2-4 Couple (over 55, no dependent children) 25-35% 10-18 18-25 4-8 6-12 5-8 2-4 6-8 3-5 3-5 Every month last year, Rachel put $175 in her regular savings account and $25 in her emergency savings account. Her gross monthly salary was $3,200. Using the table found in Chapter 2 titled Figure It Out! Ratios for Evaluating Financial Progress (p. 57, 7th ed.), what is Rachel's savings ratio? Show your formula - a/b=c. Financial experts suggest the that you should deposit in to savings each month between 5% and 10% of your gross income amount. Using this suggestion, is Rachel saving enough? Ratios for Evaluating Financial Progress Financial ratios are used to measure changes in your financial situation. These relationships indicate progress toward an improved financial position. Ratio Debt ratio Current ratio Liquidity ratio Debt-payments ratio Savings ratio Calculation Liabilities divided by net worth Liquid assets divided by current liabilities Liquid assets divided by monthly expenses Monthly credit payments divided by take-home pay Amount saved each month divided by gross income Example $25,000/$50,000 = 0.5 $4,000/$2,000 = 2 $10,000/$4,000 = 2.5 $540/$3,600 = 0.15 $648/$5,400 = 0.12 Interpretation Shows relationship between debt and net worth; a low debt ratio is best. Indicates $2 in liquid assets for every $1 of current liabilities; a high current ratio is desirable to have cash available to pay bills. Indicates the number of months in which living expenses can be paid if an emergency arises; a high liquidity ratio is desirable. Indicates how much of a person's earnings goes for debt payments (excluding a home mort- gage); most financial advisors recommend a debt-payments ratio of less than 20 percent. Financial experts recommend monthly savings of 5-10 percent. 57 Go C □

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Lets calculate Rachels allocations for each budget category using her net monthly salary We will compare them to the recommended percentages for a stu... View the full answer