FORM C Name: Section: ZID: Math 101 Financial Project Fall 2013 Directions: Read these directions carefully! When was the last time you looked over your financial records? How many of you actually have a budget? The goal of this project is help you prepare your own budget by analyzing a fictional character s finances. While working on this project, your instructor and TAs will give limited assistance. It is at their discretion how much help they can offer. You may also seek other sources of help such as other students, friends, etc. Once you complete the project, double and triple check your answers. Once you give us your project to look over, it is officially submitted for grading. We will use the following website to calculate loan payments: http://www.math.niu.edu/courses/math101/current/loan.html We use budgets to keep our finances in check. The project should teach you the steps to create your own budget including how to budget a savings account. The sooner you begin a budget, the better chance you have of keeping debt and financial frustration low. Our first task is to look at a monthly cash flow chart and use that to begin a budget. A monthly cash flow chart is used to keep track of where money is coming from (income) and where money is going (spending and bills). Another good use for a cash flow chart is to locate any extra cash you have available as well as making adjustments to your spending so you never spend more than you make. 1
Part A: You are to track Abby s monthly cash flow. You are to answer a series of questions. Please answer the questions in the given space provided. 1. [1 point] Abby s salary is $71,000 a year. This is her gross yearly salary; her salary before taxes is deducted. What is her gross monthly income? 2. [1 point] Suppose 25% of her salary is taken out for taxes. How much tax does Abby pay each month? 3. [1 point] Compute Abby s monthly take-home pay. This is her net pay; the actual amount available to Abby from her paycheck. Abby decides it s time to buy a house. Buying a house depends on many factors such as interest rates, length of the loan, down-payment, your credit worthiness, etc. Typically your monthly mortgage payment accounts for 30% of your gross monthly income. We have two scenarios to consider: She finds a house for $276,000. Abby can afford a down-payment of $30,000. 4. [1 point] What is the size of the mortgage she needs to obtain from the bank to purchase her house? Scenario 1: a. [1 point] If Abby has good credit, she will be able to finance the mortgage amount at 4.05%, compounded monthly for 30 years. How much will her monthly mortgage payment be? b. [1 point] The bank also offers a different scenario: finance the mortgage amount at 3.125%, compounded monthly for 15 years. How much will her monthly mortgage payment be? 2
Scenario 2: c. [1 point] If Abby does not have good credit, she will be able to finance the mortgage amount at 6.5%, compounded monthly for 30 years. How much will her monthly mortgage payment be? d. [1 point] The bank offers a different scenario where she finances the mortgage amount at 6.25%, compounded monthly for 15 years. How much will her monthly mortgage payment be? 5. Abby does have good credit, so she decides to go with Scenario 1a. How much will her monthly mortgage payment be? 6. [½ point] Property taxes are $6200 a year. The bank will spread this amount over 12 months and include it into your monthly mortgage payment. This is called ESCROW. How much is Abby s escrow payment? 7. [½ point] Now that Abby has bought a home, she will need to protect it. Abby purchases homeowner s insurance, which is a yearly charge of $372. She budgets for monthly payments. How much is her monthly homeowner s payment? 8. [½ point] Water, electricity, trash pickup, and natural gas are other expenses that cost additional money each month. Abby spends $52 per month for water and $25 per month for trash, $68 per month for electricity, and $59 per month for natural gas. How much does she spend total for these utilities? 9. Abby s cell phone bill is $74 a month. 3
10. TV service and internet costs $88 a month. 11. [1 point] A general rule for savings is you should save at least 8% of your take-home income. Abby decides to save 5% of her take-home income. How much is she putting towards her savings each month? 12. [1 point] Another rule of thumb is you should have at least 3 months worth of your takehome income in your savings in case you lose your job or an emergency occurs. How much is 3 months worth of her take-home income? 3 months worth of take-home income: 13. Let s not forget about food. After a month of tracking her food spending, she finds she spends $70 on restaurants and $200 on groceries. 14. [1 point] Abby borrows $9,500 to buy a used car and have it paid off in 5 years. Since she has good credit, she finances the car at 2.9%. What is her monthly car payment? 15. [½ point] Now that Abby has a car, she will have to purchase car insurance. Abby buys a policy that costs $850 per year. She pays her insurance bill monthly. What is her monthly car insurance payment? 16. No one can drive a car without purchasing gas. After tracking a month s worth of spending, Abby finds she spends $130 a month in gas. 17. Abby finds she spends $100 a month on new clothes and $90 a month on entertainment. 18. Abby also has some credit debt. She currently spends $185 per month on her credit cards. 19. After graduating from college, Abby started paying back her student loans. Her monthly student loan payment is $210 per month. 4
[5 points] 20. Fill in Abby s monthly budget flow chart. Make sure your income available after expenses is the same as (or close to) $894.30. Monthly Budget Flow Chart Income Job Total Income Monthly Budget Summary Total Income Total Expenses Net Home Expenses Mortgage Escrow Homeowner's Insurance Electricity Gas/Oil Water Trash Phone Cable/Internet Total Home Expenses Daily Living Groceries Clothing Dining/Eating out Entertainment Total Living Expenses Savings Transfer to Savings Total Savings Transportation Car Payment Car Insurance Fuel Total Transportation Obligations School Loans Credit Cards Total Obligations 5
Part B: YOU NEED TO USE http://www.math.niu.edu/courses/math101/current/loan.html for PART B. 21. [1 point] Regarding Abby s mortgage: if Abby pays her monthly mortgage payment for the entire 30 years, how much does Abby pay in interest? 22. [3 points] Suppose Abby takes $125 from her available income after expenses (from Question 20) and adds that amount to her mortgage payment every month. Assuming this is the amount she will apply to every mortgage payment, how much money does she save in interest? How does this extra amount affect the length of the loan? How much does she spend in interest? How much does she save in interest by making extra payments? How many months are taken off of the length of the loan? months [3 points] After answering these questions, write a reflection on what you have learned (investigated). You may also reflect on your own finances. Some of you may have other expenses that were not included here, such as pets, children, subscriptions, medicine, health bills, etc. Is Abby in a good position financially? Explain. 6