Chapter 4 Unit A Taking Control of Your Finances A Family Budget Action Plan Activity Sheet 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 beckground deseription of the Johnson farmily before starting the project. Larry and Danielle Johnson currently have 2 children (ages 8 and 6 ) and a labrador retriever dog. Larry works as a manager at a local manufacturing plant. His current annual salary is \( \$ 69,500 \). They have barely started saving for retirement and are not receiving futt mateling funds from the company for their \( 401-k \). To qualify for the maximum matching fumds from Gary's employer, they would need to triple their current \( 401-\mathrm{k} \) 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. The Johnsons 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: (for student) Download or ask your instructor for the file "BudgetActionPlan_Templatexls" which provides you with a spreadsheet framework to quantify the Jofinson's monthly inflow and outflow. The formulas are already set up and you will be able to use the template to help the Johnsons balance their monthly budget, helping them achieve their financial goals. Procedure: Build a "status quo" budget for the Johnsons. That is, find out the status of their current net monthly cash flow. Please 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 afterward. 1. Each month Larry's payroll deductions include \( \$ 429.93 \) for federal income tax, \( \$ 190.13 \) for state income tax, and \( \$ 443.07 \) for their FICA (Social Security and Medicare) tax. Currently, \( \$ 39.98 \) is being deducted and deposited into Larry's \( 401-\mathrm{k} \). 2. Probably one of the biggest concerns for the Johnsons right now is getting on top of the credin card debt. Their current MasterCard balance of \( \$ 6,150 \) is being assessed a \( 21 \% \) APR finance charge and they have a minimum payment of \( \$ 70 \) monthly. They plan to pay off their debt within two years, but this would require increasing their monthly credit card payment to \( \$ 317 \) in order to meet their goal.

1. **Determine Larry’s Gross Monthly Income** Larry’s annual salary is given as \[ \$69{,}500 \] To find his gross income per month, divide by 12: \[ \text{Monthly Income} = \frac{\$69{,}500}{12} \approx \$5{,}791.67 \] 2. **List Payroll Deductions** The monthly payroll deductions are as follows: - Federal income tax: \[ \$429.93 \] - State income tax: \[ \$190.13 \] - FICA (Social Security and Medicare): \[ \$443.07 \] - \(401\text{-k}\) contribution: \[ \$39.98 \] The total monthly payroll deductions are: \[ \$429.93 + \$190.13 + \$443.07 + \$39.98 = \$1{,}103.11 \] 3. **Compute Net Monthly Income** Subtract the total payroll deductions from the gross monthly income: \[ \text{Net Monthly Income} = \$5{,}791.67 - \$1{,}103.11 = \$4{,}688.56 \] 4. **Examine the Credit Card Debt Situation** The Johnsons currently have a MasterCard balance of \[ \$6{,}150 \] with a \(21\%\) APR finance charge. The monthly minimum payment is \[ \$70 \] However, to pay off the debt within two years (24 months), they need to increase the monthly payment to \[ \$317 \] This suggests that in the expenses section of the budget, the credit card payment should be listed as \[ \$317 \text{ per month (if the goal is a 2-year payoff)} \] 5. **Outline the "Status Quo" Monthly Budget Categories** - **Income:** - Gross Monthly Income: \( \$5{,}791.67 \) - Net Income (after payroll deductions): \( \$4{,}688.56 \) - **Payroll Deductions (already accounted for):** \[ \$1{,}103.11 \] - **Savings:** Although specific amounts for emergency, Christmas, medical, or vacation savings are not provided, the Johnsons have recognized that they need to allocate more funds in these areas. A starting point might be to set realistic targets for each category based on their net income, but detailed values would be determined by further discussion with the family and analysis of required expenses. - **Expenses:** - Credit Card Payment (if aiming for a 2-year payoff): \[ \$317 \text{ per month} \] - Other expenses should include normal household costs such as housing, utilities, food, transportation, etc. These need to be accurately prorated as monthly amounts based on the detailed finance information provided in the project description. 6. **Action Steps for the Budget Spreadsheet** Using the provided "BudgetActionPlan\_Template.xls": - Enter the calculated monthly gross income and net income into the income section. - Input the payroll deductions as listed, ensuring the total deduction equals approximately \( \$1{,}103.11 \). - Under expenses, add the credit card payment as \( \$317 \) if that is the chosen plan to eliminate debt in 2 years. If the family opts for the minimum payment, record \( \$70 \) but note that this would extend the debt payoff period. - For the savings categories, estimate monthly amounts based on their net income and future financial goals. Clarify that allocations must be adjusted to cover emergency, Christmas, medical, and vacation funds. 7. **Review and Adjust** After entering all values, check that the total income minus the total expenses (including savings) yields a balanced net monthly cash flow. Adjust values as necessary to ensure that income covers essential expenses and savings goals. By following these steps, you can complete a "status quo" budget for the Johnsons that reflects their current monthly financial situation and guides them toward meeting their financial goals.