Accounting
Instructions for completing the Budgeting and Student Loan Case:
Remember: You must manually add and fill in the numerical values and subtotals for your case (budget on page 1). This assignment must be completed and turned in using this word document in order to be graded.
DO NOT USE YOUR CURRENT PERSONAL FINANCIAL INFORMATION but rather USE the data as directed by the directions to estimate your future financial situation after graduation.
Row 1 You need to select two areas in which you may want to major and type them into Row 1 in Columns 1 and 2. It can be your current major and another major you’d consider or two majors you’d consider if you haven’t declared a major yet. If you can’t find your major’s estimated annual salary in Row 2’s instructions, chose the closest one to it. You then need to complete the Cash Budget for both majors (careers) using the instruction given below. For this Case, assume your “family” only has one wage earner – you!
Row 2 Calculate your expected gross monthly salary for both majors:
1st Find the estimated annual salary based upon your major. To do this, 2019 Projected Salaries by Major document that is on Blackboard (included as part of the assignment posting). Find your major within the tables (not the graphs) and select the mean salary amount (not the median or percentile amounts).
2nd Calculate the gross “monthly” salary for your two possible career choices. For example, if the major you are considering is Accounting, you will choose the $57,511. If you second career choice is Advertising, you will choose the $52,909. Then, calculate the gross “monthly” salary by dividing the yearly salary for the major by 12.
Row 3 Calculate the approximate amount your employer will withhold from your pay check—FICA, Medicare, federal income taxes, state income taxes, union dues, contributions to United Way (or some other charity), and other withholding. Assume these total withholding are equal to 30% of your gross monthly pay.
Row 4 Calculate the net “monthly” salary (gross salary minus withholdings)—cash you will receive each month.
Rows 5-6 List any additional revenue you expect to receive, including Interest, Dividends, a second job, etc. (if you don’t expect to have any, you can leave it blank.)
Row 7 Total all revenues (Row 4 plus Rows 5 and 6)
Row 8 Calculate your expected payments, assuming you have the following loan amounts at graduation from your 4 years in school; you do not have moving expenses or other job startup expenses. Even if you won’t have any student loans or you’ll have more student loans than this – use these amounts as an example. Use http://www.bankrate.com/calculators/college-planning/loan-calculator.aspx to determine the monthly payments. Skip over the ‘loan term in years’ box and use the loan term in months from the table below. You will need to add all 4 year loan monthly payments together to arrive at the total payment you must make each month – the box that is highlighted in yellow will be put on your cash budget above. Complete the table below by calculating the Monthly Payment and Total to be paid columns, also create a total of the amounts in both columns in the bottom “Total” row.
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Calculation of Row 8 |
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School Year |
Loan amount |
Interest rate per year |
Loan term in months (1) |
Monthly payments (2) |
Total to be paid =(1) * (2) |
|
1 |
$10,000 |
3.4% |
120 |
|
|
|
2 |
$20,000 |
3.4% |
120 |
|
|
|
3 |
$10,000 |
6.8% |
180 |
|
|
|
4 |
$30,000 |
6.8% |
180 |
|
|
|
Total |
$70,000 |
|
|
$ |
$ |
Row 9 Assume you have credit card debt of $3,000 when you graduate from college and you will make no more charges on the credit card (even if you don’t/won’t have that). Go to http://www.bankrate.com/calculators/credit-cards/credit-card-payoff-calculator.aspx and enter your total credit card balance of $3,000 with an interest rate of 15.36%. Skip the ‘Payment per month’ box then for the line ‘Desired months to payoff’ enter that you want to pay the balance off in 60 months (5 years). Use the monthly payment generated as the amount in your budget.
Row 10 Put at least 2% your Row 7 amount (Total expected monthly revenue) aside for an emergency fund/savings.
Use the IRS “Allowable Living Expense National Standards” as an estimate (starting place) to determine the amounts you use in rows 11-14. NOTE these are minimum standards so you may need to adjust them.
Row 11 See http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/National-Standards-Food-Clothing-and-Other-Items Note what these standards include and adjust them to reflect what you anticipate your expense will be for food, housekeeping, apparel and personal care products.
Row 12 See http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/National-Standards-Out-of-Pocket-Health-Care If you can document higher out-of-pocket costs you can increase this monthly amount.
Row 13 See http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Local-Standards-Housing-and-Utilities You then need to choose a state or territory where you expect to be living after you graduate. Then chose a County and then use this amount for your housing and utilities. This includes a mortgage or rent, property taxes, interest, insurance, maintenance, repairs, gas, electric, water, heating oil, garbage collection, residential telephone service, cell phone service, cable television and internet service. Again you should increase this monthly amount if you can document a higher amount.
Row 14 See http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Local-Standards-Transportation In this table you will note a monthly cost for public transportation, ownership and operating costs. You will need to add these three amounts together depending upon if you will use public transportation and where you expect to live. If the city you plan to live in is not listed, use the “region” amount listed in the table for operating costs.
Row 15 List any additional expenses you might expect to have, not covered in Rows 8 thorough 14. (if you don’t expect to have any, you can leave it blank.)
Row 16 Total the amounts in Rows 8 through 15.
Row 17 Subtract Row 16 from Row 7.