The Financial Statements of harry and Belinda Johnson Suggest Budgeting ProblemsHarry has worked at a medium-size interior design firm for five years and earns a salary of $4,080 per month. He also receives $3,000 in interest income once a year from a trust fund set up by his deceased father’s estate. Belinda earns a salary of $6,400 per month, and she has many job-related benefits including flexible benefits program, life insurance, health insurance, a 401(k) retirement program, workplace financial education, and a credit union. The Johnsons live in an old apartment located approximately halfway between their places of employment. However, their rent will increase by $100 a month in July. Harry drives about ten minutes to his job, and Belinda travels about 15 min- utes via public transportation to reach her downtown job. Harry and Belinda’s apartment is very nice, but small, and it is furnished primarily with furniture given to them by some of his friends. Soon after getting married, Harry and Belinda decided to begin their financial planning. Fortu- nately each had taken a college course in personal finance. After initial discussion, they worked together for three evenings to develop the financial statements presented be- low. Note that the cash flow statement covered the first six months of their marriage. (c) The Johnsons enjoy a high income because both work at well-paying jobs. They have spent parts of three evenings over the past several days discussing their financial values and goals together. As shownin the upper portion of Figure 3-5, they have estab- lished three long-term goals: $6,000 for a European vacation to be taken in 2020, $5,000 needed in October 2021 for a down payment on a new au- tomobile, and $30,000 for a down payment on a home to be purchased in December 2023. As shown in the lower portion of the figure, the Johnsons did some calculations to determine how much they had to save for each goal—over the near term—to stay on schedule to reach their long-term goals as well as pay for two vacations and an anniversary party. After developing their balance sheet and cash-flow state- ment (shown below), the Johnsons made a budget for the year (shown in Table 3-6 on page 97). They then reconciled various conflicting needs and wants until they found that total annual income was close to the total of planned expenses. Next, they created a revolving savings fund (Table 3-8 on page 99) in which they were careful to include enough money each month to meet all of their short-term goals. When developing their cash-flow calendar for the year (Table 3-7 on page 98), they noticed a prob- lem: substantial cash deficits in November and December. Make specific recommendations to the Johnsons on how they could make reductions in their budget estimates. Do not offer suggestions that would alter their new lifestyle drastically, as the couple would reject such ideas. PreviewFileEditViewGoToolsWindowHelp61%Sun Mar 14 3:49 PMa Personal finance. by E Thomas Garman (z-lib.org).pdf (page 130 of 644) – EditedQ Searchv Personal finance..128129130131Table 3-7Cash-Flow Calendar for Harryand Belinda Johnson3.Surplus/Deficit (1-2)2EstimatedEstimatedCumulativeSurplus/Deficit$ 233MonthIncomeExpensesJanuary$ 10,510$ 10,277$233February10,510$ 10,277233$ 46660L $$ 947March10,51010,26724310,272238μανMay10,51010,51010,277233$1,180June10,51010,507$1,183July10,51010,45753$1,236August13,51013,47733$1,269September10,51010,45753$1,322October10,51010,43773$1,395ndNovember10,51010,895- 385$1,010DEFICITsesble ExpDecember10,51011,095-585$ 425ationTotal$129,120$128,695$425by tripwancesortationtharityupkeerenewal fees, property taxes, back-to-school supplies, vet grooming and checkups, den-tal cleanings, magazine subscriptions, special haircuts, one-time tickets for whatever,birthdays, and Christmas (travel, decorations, gifts). Table 3-8 shows the Johnsons' re-volving savings fund. When preparing their budget, the Johnsons realized that theywere going to have significant deficits.dentisntenarFinaTable 3-8Revolving Savings Fund for Harryand Belinda JohnsonLargeExpensesDeposit Into WithdrawalFundFundBalanceAmountMonthNeededFrom FundJanuary$ 250$ 250$February250$ 500March210$ 710April250096 $May$1,15006June$1,150JulySummer1,200240$1,390vacationAugust$1,390September$1,590October$1,780061NovemberGifts/Other385$1,320DecemberDinner585220$1,100Party/OtherTotal$2,170$1,780089$06E$- PreviewFileEditViewGoToolsWindowHelp61%Sun Mar 14 3:49 PMa Personal finance. by E Thomas Garman (z-lib.org).pdf (page 129 of 644) – EditedQ Searchv Personal finance..128129이130131CHAPTER 3 Financial Statements, Tools, and Budgets 97Table 3-62018 Unfinished Annual Budget Estimates for Harry and Belinda JohnsonYearly MonthlyJan.Feb.Mar.Apr.JuneJulyAug.Sept.Oct.Nov.Dec.TotalAveragesINCOMEHarry's salary4,080 4,0804,0804,0804,0804,0804,0804,0804,0804,0804,0804,08048,9604,080.00Belinda's salary6,4006,4006,4006,4006,4006,4006,4006,4006,40076,8006,400.00Interest30.00250.00000'10,760.00Income from trust000'ETOTAL INCOME10,510 10,510 10,510 10,51010,510 10,510 10,51013,510 10,510 10,510 10,51010,510129,120EXPENSESFixed Expenses19,8001,650.00009'00800L'L35000'35000L'3501,700009'L350Rent1,700009'l00'009'L009'L009'L350006'240Health insurance350325.000000Life insurancendHome purchase fund00S2202,500208.33Renter's insurance22018.33DEFICITsesAutomobile insurance1,200100.00009009ble ExpAuto loan payments5,880490.00060060060060060060ationStudent loan payments009'1,200300.00008000000000000by trip100.00u Savings/emergencies00 L195wancesortationHarry's retirement plan1951951951951951951951951951951952,340195.000004,8001,920oydn Belinda's retirement plan400.00tharity000160.00091,70009L20,400uspuap Cable TV and Internet091090909L09109 0ntenanFederal income taxes091,7001,7001,7001,700.00002'L00L'00L'500.00State income taxes000000'9000800.00Social security taxesAutomobile registrationTotal fixed expensesVariable ExpensesFina008008008008008008008008008009'6008008008006,991.67006'E86,5656,5656,5656,5656,5657,1656,7157,4357,2157,2157,5157,8153,400283.33Savings money marketRevolving savings fundFood (home)000'E1,780148.33055021006550250250250240550550550550550550550550550550.00009'900822000822000822000E220008220009'2,64000800'00(1no) poo220.00Utilities2202202202202202202201101101,320110.00Cell phonesAuto gas repairsDoctor/dentist/out-of-pocketMedicines1101101101101101101101101102202202202202202202202202202202202202,640220.001,20000 000 000 000 07200917009090900'0909090909090909092,040170.00Clothing and upkeepChurch and charity1,16096.6700 011000 014000 01200900L00 000 L00 01,475Gifts75122.9209090808Public transportation1,920160.00090910910909 0090909 L000'91,800500.0000S150Personal allowancesEntertainment150150150150150150150150150150150150.00300.00009'1,200European vacation007100.0000042000420074200742Summer vacationAnniversary dinner party42424242424241.67Miscellaneous1,200100.0000 044,795Total variable3,712 3,7123,7023,7073,7123,3423,7426,0423,2423,2223,3803,2803,732.92expensesTOTAL EXPENSES10,277 10,277 10,26710,272 10,277 10,507 10,45713,47710,45710,437 10,89511,095128,69510,724.583353-385-585425Difference (availablefor spending,saving, investing,and donating23323324323823353EL385585Revolving savingswithdrawals

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The Financial Statements of harry and Belinda Johnson Suggest Budgeting Problems

Harry has worked at a medium-size interior design firm for five years and earns a salary of $4,080 per month. He also receives $3,000 in interest income once a year from a trust fund set up by his deceased father’s estate. Belinda earns a salary of $6,400 per month, and she has many job-related benefits including flexible benefits program, life insurance, health insurance, a 401(k) retirement program, workplace financial education, and a credit union. The Johnsons live in an old apartment located approximately halfway between their places of employment. However, their rent will increase by $100 a month in July. Harry drives about ten minutes to his job, and Belinda travels about 15 min- utes via public transportation to reach her downtown job. Harry and Belinda’s apartment is very nice, but small, and it is furnished primarily with furniture given to them by some of his friends. Soon after getting married, Harry and Belinda decided to begin their financial planning. Fortu- nately each had taken a college course in personal finance. After initial discussion, they worked together for three evenings to develop the financial statements presented be- low. Note that the cash flow statement covered the first six months of their marriage.

(c) The Johnsons enjoy a high income because both work at well-paying jobs. They have spent parts of three evenings over the past several days discussing their financial values and goals together. As shown
in the upper portion of Figure 3-5, they have estab- lished three long-term goals: $6,000 for a European vacation to be taken in 2020, $5,000 needed in October 2021 for a down payment on a new au- tomobile, and $30,000 for a down payment on a home to be purchased in December 2023. As shown in the lower portion of the figure, the Johnsons did some calculations to determine how much they had to save for each goal—over the near term—to stay on schedule to reach their long-term goals as well as pay for two vacations and an anniversary party. After developing their balance sheet and cash-flow state- ment (shown below), the Johnsons made a budget for the year (shown in Table 3-6 on page 97). They then reconciled various conflicting needs and wants until they found that total annual income was close to the total of planned expenses. Next, they created a revolving savings fund (Table 3-8 on page 99) in which they were careful to include enough money each month to meet all of their short-term goals. When developing their cash-flow calendar for the year (Table 3-7 on page 98), they noticed a prob- lem: substantial cash deficits in November and December. Make specific recommendations to the Johnsons on how they could make reductions in their budget estimates. Do not offer suggestions that would alter their new lifestyle drastically, as the couple would reject such ideas.

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131
Table 3-7
Cash-Flow Calendar for Harry
and Belinda Johnson
3.
Surplus/
Deficit (1-2)
2
Estimated
Estimated
Cumulative
Surplus/Deficit
$ 233
Month
Income
Expenses
January
$ 10,510
$ 10,277
$233
February
10,510
$ 10,277
233
$ 466
60L $
$ 947
March
10,510
10,267
243
10,272
238
μαν
May
10,510
10,510
10,277
233
$1,180
June
10,510
10,507
$1,183
July
10,510
10,457
53
$1,236
August
13,510
13,477
33
$1,269
September
10,510
10,457
53
$1,322
October
10,510
10,437
73
$1,395
nd
November
10,510
10,895
- 385
$1,010
DEFICIT
ses
ble Exp
December
10,510
11,095
-585
$ 425
ation
Total
$129,120
$128,695
$425
by trip
wances
ortation
tharity
upkee
renewal fees, property taxes, back-to-school supplies, vet grooming and checkups, den-
tal cleanings, magazine subscriptions, special haircuts, one-time tickets for whatever,
birthdays, and Christmas (travel, decorations, gifts). Table 3-8 shows the Johnsons' re-
volving savings fund. When preparing their budget, the Johnsons realized that they
were going to have significant deficits.
dentis
ntenar
Fina
Table 3-8
Revolving Savings Fund for Harry
and Belinda Johnson
Large
Expenses
Deposit Into Withdrawal
Fund
Fund
Balance
Amount
Month
Needed
From Fund
January
$ 250
$ 250
$
February
250
$ 500
March
210
$ 710
April
250
096 $
May
$1,150
06
June
$1,150
July
Summer
1,200
240
$1,390
vacation
August
$1,390
September
$1,590
October
$1,780
061
November
Gifts/Other
385
$1,320
December
Dinner
585
220
$1,100
Party/Other
Total
$2,170
$1,780
089$
06E$-

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CHAPTER 3 Financial Statements, Tools, and Budgets 97
Table 3-6
2018 Unfinished Annual Budget Estimates for Harry and Belinda Johnson
Yearly Monthly
Jan.
Feb.
Mar.
Apr.
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
Total
Averages
INCOME
Harry's salary
4,080 4,080
4,080
4,080
4,080
4,080
4,080
4,080
4,080
4,080
4,080
4,080
48,960
4,080.00
Belinda's salary
6,400
6,400
6,400
6,400
6,400
6,400
6,400
6,400
6,400
76,800
6,400.00
Interest
30.00
250.00
000'
10,760.00
Income from trust
000'E
TOTAL INCOME
10,510 10,510 10,510 10,510
10,510 10,510 10,510
13,510 10,510 10,510 10,510
10,510
129,120
EXPENSES
Fixed Expenses
19,800
1,650.00
009'
008
00L'L
350
00'
350
00L'
350
1,700
009'L
350
Rent
1,700
009'l
00'
009'L
009'L
009'L
350
006'
240
Health insurance
350
325.00
00
00
Life insurance
nd
Home purchase fund
00S
220
2,500
208.33
Renter's insurance
220
18.33
DEFICIT
ses
Automobile insurance
1,200
100.00
009
009
ble Exp
Auto loan payments
5,880
490.00
060
060
060
060
060
060
ation
Student loan payments
009'
1,200
300.00
008
00
000
00
000
00
by trip
100.00
u Savings/emergencies
00 L
195
wances
ortation
Harry's retirement plan
195
195
195
195
195
195
195
195
195
195
195
2,340
195.00
000
4,800
1,920
oydn Belinda's retirement plan
400.00
tharity
000
160.00
09
1,700
09L
20,400
uspuap Cable TV and Internet
091
09
09
09L
091
09 0
ntenan
Federal income taxes
09
1,700
1,700
1,700
1,700.00
002'L
00L'
00L'
500.00
State income taxes
000
000'9
000
800.00
Social security taxes
Automobile registration
Total fixed expenses
Variable Expenses
Fina
008
008
008
008
008
008
008
008
008
009'6
008
008
008
00
6,991.67
006'E8
6,565
6,565
6,565
6,565
6,565
7,165
6,715
7,435
7,215
7,215
7,515
7,815
3,400
283.33
Savings money market
Revolving savings fund
Food (home)
000'E
1,780
148.33
0
550
210
06
550
250
250
250
240
550
550
550
550
550
550
550
550
550
550.00
009'9
008
220
008
220
008
220
00E
220
008
220
009'
2,640
008
00'00
(1no) poo
220.00
Utilities
220
220
220
220
220
220
220
110
110
1,320
110.00
Cell phones
Auto gas repairs
Doctor/dentist/
out-of-pocket
Medicines
110
110
110
110
110
110
110
110
110
220
220
220
220
220
220
220
220
220
220
220
220
2,640
220.00
1,200
00 0
00 0
00 0
00 0
720
09
170
09
09
09
00'09
09
09
09
09
09
09
09
09
2,040
170.00
Clothing and upkeep
Church and charity
1,160
96.67
00 0
110
00 0
140
00 0
120
09
00L
00 0
00 L
00 0
1,475
Gifts
75
122.92
09
09
08
08
Public transportation
1,920
160.00
09
091
091
09
09 0
09
09
09 L
000'9
1,800
500.00
00S
150
Personal allowances
Entertainment
150
150
150
150
150
150
150
150
150
150
150
150.00
300.00
009'
1,200
European vacation
007
100.00
000
42
000
42
007
42
007
42
Summer vacation
Anniversary dinner party
42
42
42
42
42
42
41.67
Miscellaneous
1,200
100.00
00 0
44,795
Total variable
3,712 3,712
3,702
3,707
3,712
3,342
3,742
6,042
3,242
3,222
3,380
3,280
3,732.92
expenses
TOTAL EXPENSES
10,277 10,277 10,267
10,272 10,277 10,507 10,457
13,477
10,457
10,437 10,895
11,095
128,695
10,724.58
33
53
-385
-585
425
Difference (available
for spending,
saving, investing,
and donating
233
233
243
238
233
53
EL
385
585
Revolving savings
withdrawals

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