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2.4 Budgeting

2.4 Budgeting
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  • 15. Where Does My Money Go?

    Your entire monthly income is represented in the doughnut graph. Find your gross annual income. (See Example 5 and Example 6.)

    • Worked-Out Solution

      An easy way to find your total monthly income is to enter each category in a spreadsheet and then total the column.

      With a total monthly income of $4500, your total annual income is

      As it happens, this annual income is close to the median annual income for a household in the United States.

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      ______   _    _     _____      ___      ______  
     /_____// | || | ||  /  ___||   / _ \\   /_   _// 
     `____ `  | || | || | // __    / //\ \\    | ||   
     /___//   | \\_/ || | \\_\ || |  ___  ||  _| ||   
     `__ `     \____//   \____//  |_||  |_|| /__//    
     /_//       `---`     `---`   `-`   `-`  `--`     
     `-`                                              
    
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  • 16. Budget Percent for Food

    What percent of your expenses are budgeted for food? (See Example 5 and Example 6.)

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     _    _     _____      _____    ______    _____   
    | \  / ||  |  ___||   / ___//  /_   _//  / ____|| 
    |  \/  ||  | ||__     \___ \\   -| ||-  / //---`' 
    | .  . ||  | ||__     /    //   _| ||_  \ \\___   
    |_|\/|_||  |_____||  /____//   /_____//  \_____|| 
    `-`  `-`   `-----`  `-----`    `-----`    `----`  
                                                      
    
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  • 17. Budget Percent for Entertainment

    What percent of your expenses are budgeted for entertainment? (See Example 5 and Example 6.)

    • Worked-Out Solution

      Graphical Estimation: In the doughnut graph, you know that a quarter of the doughnut represents 25% of the monthly total. The red part (entertainment) is roughly one-fifth of a quarter of the graph. So, you can estimate that entertainment represents about 5% of your monthly budget.

      Calculation: To calculate the percent for any category, you can use the spreadsheet that you created in Exercise 15. In the column for percent, divide each budgeted amount by $4500 (your total monthly income).

      So, you are budgeting about 6% of your monthly income for entertainment. This agrees with the graphical estimation of 5%.

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       _____     ___      _____     ______   ______   
      / ___//   / _ \\   / ____||  /_   _// |      \\ 
      \___ \\  / //\ \\ / //---`'   -| ||-  |  --  // 
      /    // |  ___  ||\ \\___     _| ||_  |  --  \\ 
     /____//  |_||  |_|| \_____||  /_____// |______// 
    `-----`   `-`   `-`   `----`   `-----`  `------`  
                                                      
    
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  • 18. Eliminating Expenses

    What percent of your expenses could you eliminate if needed? (See Example 5 and Example 6.)

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       _____     ___      ______    _____     _  __  
      / ___//   / _ \\   /_   _//  |  ___||  | |/ // 
      \___ \\  | / \ ||    | ||    | ||__    | ' //  
      /    //  | \_/ ||   _| ||    | ||__    | . \\  
     /____//    \___//   /__//     |_____||  |_|\_\\ 
    `-----`     `---`    `--`      `-----`   `-` --` 
                                                     
    
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  • 19. The 28/36 Rules for Home Mortgage Payments

    You are interested in buying a house. Your realtor determines that the monthly mortgage (including property taxes and insurance) for the house is $1350.00. Of the $594 budgeted for transportation expenses, $384 is your car payment. According to the 28/36 rules, do you qualify for the home mortgage? (See Example 5 and Example 6.)

    • Worked-Out Solution

      The 28% Rule states that the ratio of your monthly mortgage (including loan payment, property taxes, and insurance) to your gross monthly income should not exceed 28%.

      The 36% Rule states that the ratio of your total monthly debt payments (mortgage, credit card minimum payments, loans, and all other debts) to your gross monthly income should not exceed 36%.

      So, using the 28/36 rules, you fail to qualify for the home mortgage.

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     _    _     _____    _    _     _____    _    _   
    | \  / ||  |  ___|| | || | ||  |  ___|| | |  | || 
    |  \/  ||  | ||__   | || | ||  | ||__   | |/\| || 
    | .  . ||  | ||__   | \\_/ ||  | ||__   |  /\  || 
    |_|\/|_||  |_____||  \____//   |_____|| |_// \_|| 
    `-`  `-`   `-----`    `---`    `-----`  `-`   `-` 
                                                      
    
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  • 20. Mortgage Payment 10 Years from Now

    Using the 28/36 rules, how much do you think you will be able to spend on a monthly mortgage payment 10 years from now? Explain your reasoning. (See Example 5 and Example 6.)

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    __    __     ___    __    __    _____     _____   
    \ \\ / //   / _ \\  \ \\ / //  |  ___||  /  ___|| 
     \ \/ //   | / \ ||  \ \/ //   | ||__   | // __   
      \  //    | \_/ ||   \  //    | ||__   | \\_\ || 
       \//      \___//     \//     |_____||  \____//  
        `       `---`       `      `-----`    `---`   
                                                      
    
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  • 21. Comparing Your Budget to a Financial Adviser

    You go to a financial adviser to get advice about household budgets. The financial adviser gives you the general percent guidelines shown. How does your budget compare with the guidelines? (See Example 5 and Example 6.)

    • Worked-Out Solution

      According to the Household Budget Guidelines, your budget is looking good. You are keeping your expenses under the guideline percents.

      Here are your areas of concern.

      • You only set aside 5% for retirement. This is half the recommended amount.
      • If you combine 1.1% for clothing with 5.4% for miscellaneous, you get a total of 6.5%. Comparing this to the miscellaneous recommendation of 2-4%, your budget is about double the recommended amount.

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      _____     _____    _    _     ______            
     / ____||  |  ___|| | |  | ||  /_   _//     ___   
    / //---`'  | ||__   | |/\| ||   -| ||-     /   || 
    \ \\___    | ||__   |  /\  ||   _| ||_    | [] || 
     \_____||  |_____|| |_// \_||  /_____//    \__ || 
      `----`   `-----`  `-`   `-`  `-----`      -|_|| 
                                                 `-`  
    
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  • 22. Analyzing a Budget

    Describe other ways you could analyze your budget. (See Example 5 and Example 6.)

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     _    _      ___      ______    _____      _____  
    | || | ||   / _ \\   /_____//  |  ___||   / ___// 
    | || | ||  | / \ ||  `____ `   | ||__     \___ \\ 
    | \\_/ ||  | \_/ ||  /___//    | ||__     /    // 
     \____//    \___//   `__ `     |_____||  /____//  
      `---`     `---`    /_//      `-----`  `-----`   
                         `-`                          
    
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