A cash-flow budget uses the same format as a cash-flow statement. It is prepared on a monthly basis and it reflects budgeted income and expenses.
In addition to the cash-flow statement, Deon and May made a list of budget assumptions, listed for you here:
• | Deon’s income will increase by 5%, effective January 1. His bonus is generally 10% of his income in the previous year, and he receives it in January. |
• | May’s raise will be 3%, effective January 1. |
• | Interest and dividend income will conservatively be the same in 2017 as it was in 2016 and will be received on a monthly basis. |
• | Mortgage payments will be the same in 2017 as they were in 2016. |
• | Federal income taxes are estimated at 20%, state income taxes at 6%, and social security taxes at 7.65% of wages, including Deon’s bonus. |
• | Property insurance and property taxes are paid every six months, in June and December. The amount is expected to be the same in 2017 as it was in 2016. |
• | May will contribute $60 per week for the employee portion of their medical insurance. According to her pay schedule, April and June are five-week months. |
• | Auto insurance is paid at the end of each calendar quarter and should not be more than it was in 2016. |
• | Deon and May would like to purchase a new car in the next few years and will put $500 a month away specifically for that purpose. |
• | Deon and May don’t expect the amount of variable expenses to change in 2017 except that they would like to double their charitable contributions and go on a vacation to Ireland in June. The vacation will cost $6,000. |
• | Gift purchases are made mostly around the holidays, so Deon and May are planning to pay half of the gift expense in December and half in January when the credit card bill comes in. |
• | Water and sewer is billed quarterly, in January, April, July, and October. The cost of heat should be spread over six months from November to April. |
• | All other variable expenses can be spread evenly every month at 2016 amounts. |
Use the information from their cash-flow statement (listed in the first column of the following annual budget) and their budget assumptions to fill in the missing amounts for the first six months of Deon and May’s monthly budget for 2017. Note: Be sure to fill in every blank space with a value.
Annual Budget |
Cash-Flow Statement |
2017 |
|||||
---|---|---|---|---|---|---|---|
Name: Deon and May Daley |
|||||||
2016 | Jan. | Feb. | Mar. | Apr. | May | Jun. | |
INCOME | |||||||
Deon’s salary | 59,000 | ||||||
May’s salary | 53,100 | ||||||
Deon’s Bonus | 5,000 | ||||||
Interest and dividends | 150 | ||||||
Total Income | $117,250 | ||||||
EXPENDITURES | |||||||
Fixed Expenses | |||||||
Mortgage | 14,976 | ||||||
Deon’s federal income taxes | 12,800 | ||||||
Deon’s state income taxes | 3,840 | ||||||
Deon’s social security taxes | 4,896 | ||||||
May’s federal income taxes | 10,620 | ||||||
May’s state income taxes | 3,186 | ||||||
May’s social security taxes | 4,062 | ||||||
Property taxes | 4,100 | ||||||
Property insurance | 1,200 | ||||||
Medical insurance | 2,400 | ||||||
Automobile insurance and registration | 700 | ||||||
Savings for auto purchase | |||||||
Total Fixed Expenses | $62,780 | ||||||
Variable Expenses | |||||||
Food | 1,620 | ||||||
Entertainment | 3,000 | ||||||
Dining out | 4,700 | ||||||
Electric | 350 | ||||||
Water and sewer | 800 | ||||||
Heat | 1,250 | ||||||
Cable TV | 3,000 | ||||||
Telephone | 600 | ||||||
Cell phone | 900 | ||||||
Gifts | 2,000 | ||||||
Personal care | 600 | ||||||
Medical expenses | 3,700 | ||||||
Vehicle gas and maintenance | 2,530 | ||||||
Charitable contributions | 1,500 | ||||||
Vacation | |||||||
Total Variable Expenses | $26,550 | ||||||
Total Expenses | $89,330 | ||||||
SURPLUS (DEFICIT) | $27,920 |
Deon and May have an emergency fund of $40,000. They would like to start saving for retirement, but they have not signed up for their companies’ 401(k) plans. Neither company matches 401(k) contributions.
What do you suggest for Deon and May based on their goals and the budget that they have put together?
The $40,000 that the Daleys have saved for an emergency is ___three months of expenses. They have not, however, taken advantage of the employer 401(k) plans that are available to them. If an employer does not match contributions, it is ____advantageous to contribute to a company-sponsored retirement savings plan because the contributions to the plan are invested with ___earnings. If the Daleys invest part of their surplus in their 401(k) plans, they will save the designated amount plus another ___of that amount because of the tax savings.
Since you have asked multiple questions, I will address the first one.
Use the information from their cash-flow statement (listed in the first column of the following annual budget) and their budget assumptions to fill in the missing amounts for the first six months of Deon and May’s monthly budget for 2017. Note: Be sure to fill in every blank space with a value.
------------
Please see the table below. On the right hand side i have inserted a column titled "Remarks". I have explained how each line item has been calculated. That will help you understand the mathematics behind it.
(All financials below are in $)
Annual Budget |
Cash-Flow Statement |
2017 |
||||||
Name: Deon and May Daley |
||||||||
2016 |
Jan. |
Feb. |
Mar. |
Apr. |
May |
Jun. |
Remarks |
|
INCOME |
||||||||
Deon’s salary |
59,000 |
5,162.50 |
5,162.50 |
5,162.50 |
5,162.50 |
5,162.50 |
5,162.50 |
Last year’s annual salary is 59,000. Monthly salary = 59,000 / 12; Increase this by 5% |
May’s salary |
53,100 |
4,557.75 |
4,557.75 |
4,557.75 |
4,557.75 |
4,557.75 |
4,557.75 |
Last year’s annual salary is 53,100. Monthly salary = 53,100 / 12; Increase this by 3% |
Deon’s Bonus |
5,000 |
5,900.00 |
- |
- |
- |
- |
- |
10% of 59,000 (last year's salary); paid out in January |
Interest and dividends |
150 |
12.50 |
12.50 |
12.50 |
12.50 |
12.50 |
12.50 |
Same as last year; divide it by 12 to convert into per month figure |
Total Income |
$117,250 |
15,632.75 |
9,732.75 |
9,732.75 |
9,732.75 |
9,732.75 |
9,732.75 |
Sum of above line items |
EXPENDITURES |
||||||||
Fixed Expenses |
||||||||
Mortgage |
14,976 |
1,248.00 |
1,248.00 |
1,248.00 |
1,248.00 |
1,248.00 |
1,248.00 |
same in 2017 as they were in 2016; divide the annual figure of 2016 by 12 to get monthly figure for 2017 |
Deon’s federal income taxes |
12,800 |
2,212.50 |
1,032.50 |
1,032.50 |
1,032.50 |
1,032.50 |
1,032.50 |
20% x (Salary + Bonus) |
Deon’s state income taxes |
3,840 |
663.75 |
309.75 |
309.75 |
309.75 |
309.75 |
309.75 |
6% x (Salary + Bonus) |
Deon’s social security taxes |
4,896 |
846.28 |
394.93 |
394.93 |
394.93 |
394.93 |
394.93 |
7.65% x (Salary + Bonus) |
May’s federal income taxes |
10,620 |
911.55 |
911.55 |
911.55 |
911.55 |
911.55 |
911.55 |
20% of May's salary |
May’s state income taxes |
3,186 |
273.47 |
273.47 |
273.47 |
273.47 |
273.47 |
273.47 |
6% of May's salary |
May’s social security taxes |
4,062 |
348.67 |
348.67 |
348.67 |
348.67 |
348.67 |
348.67 |
7.65% of May's salary |
Property taxes |
4,100.00 |
- |
- |
- |
- |
- |
2,050.00 |
Annual amount for 2017 is same as that for 2016. But it's paid only twice once in June and next in Decmeber. Hence une's figure is 4100/2 = 2050 |
Property insurance |
1,200.00 |
- |
- |
- |
- |
- |
600.00 |
Annual amount for 2017 is same as that for 2016. But it's paid only twice once in June and next in Decmeber. Hence une's figure is 4100/2 = 2050 |
Medical insurance |
2,400.00 |
240.00 |
240.00 |
240.00 |
300.00 |
240.00 |
300.00 |
60 per week x 5 weeks = 300 for April & June; For others it's 60 per week x 4 weeks = 240 |
Automobile insurance and registration |
700.00 |
- |
- |
175.00 |
- |
- |
175.00 |
Paid quarterly in the last month of each quarter. Quarterly payment = annual payment /4 = 700/4 = 175 |
Savings for auto purchase |
500.00 |
500.00 |
500.00 |
500.00 |
500.00 |
500.00 |
500 per month |
|
Total Fixed Expenses |
$62,780 |
7,244.21 |
5,258.86 |
5,433.86 |
5,318.86 |
5,258.86 |
8,143.86 |
Sum of all the above line items in the fixed expenses head |
Variable Expenses |
||||||||
Food |
1,620 |
135.00 |
135.00 |
135.00 |
135.00 |
135.00 |
135.00 |
Annual amount of 2016 / 12 in each month |
Entertainment |
3,000 |
250.00 |
250.00 |
250.00 |
250.00 |
250.00 |
250.00 |
Annual amount of 2016 / 12 in each month |
Dining out |
4,700 |
391.67 |
391.67 |
391.67 |
391.67 |
391.67 |
391.67 |
Annual amount of 2016 / 12 in each month |
Electric |
350 |
29.17 |
29.17 |
29.17 |
29.17 |
29.17 |
29.17 |
Annual amount of 2016 / 12 in each month |
Water and sewer |
800 |
66.67 |
66.67 |
66.67 |
66.67 |
66.67 |
66.67 |
Annual amount of 2016 / 12 in each month |
Heat |
1,250 |
104.17 |
104.17 |
104.17 |
104.17 |
104.17 |
104.17 |
Annual amount of 2016 / 12 in each month |
Cable TV |
3,000 |
250.00 |
250.00 |
250.00 |
250.00 |
250.00 |
250.00 |
Annual amount of 2016 / 12 in each month |
Telephone |
600 |
50.00 |
50.00 |
50.00 |
50.00 |
50.00 |
50.00 |
Annual amount of 2016 / 12 in each month |
Cell phone |
900 |
75.00 |
75.00 |
75.00 |
75.00 |
75.00 |
75.00 |
Annual amount of 2016 / 12 in each month |
Gifts |
2,000 |
166.67 |
166.67 |
166.67 |
166.67 |
166.67 |
166.67 |
Annual amount of 2016 / 12 in each month |
Personal care |
600 |
50.00 |
50.00 |
50.00 |
50.00 |
50.00 |
50.00 |
Annual amount of 2016 / 12 in each month |
Medical expenses |
3,700 |
308.33 |
308.33 |
308.33 |
308.33 |
308.33 |
308.33 |
Annual amount of 2016 / 12 in each month |
Vehicle gas and maintenance |
2,530 |
210.83 |
210.83 |
210.83 |
210.83 |
210.83 |
210.83 |
Annual amount of 2016 / 12 in each month |
Charitable contributions |
1,500 |
250.00 |
250.00 |
250.00 |
250.00 |
250.00 |
250.00 |
(Annual amount of 2016 x 2) / 12 in each month |
Vacation |
6,000.00 |
Vacation cost of $ 6000 in June |
||||||
Total Variable Expenses |
$26,550 |
2,337.50 |
2,337.50 |
2,337.50 |
2,337.50 |
2,337.50 |
8,337.50 |
Sum of all the above line items in the variable expenses head |
Total Expenses |
$89,330 |
9,581.71 |
7,596.36 |
7,771.36 |
7,656.36 |
7,596.36 |
16,481.36 |
Fixed expenses + variable expenses |
SURPLUS (DEFICIT) |
$27,920 |
6,051.04 |
2,136.39 |
1,961.39 |
2,076.39 |
2,136.39 |
(6,748.61) |
Total income - total expenses |
A cash-flow budget uses the same format as a cash-flow statement. It is prepared on a...
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