Gary’s current annual salary is $59,400. They have barely started saving for retirement and are not receiving full matching funds from the company for their 401-k. To qualify for the maximum matching funds from Gary’s employer, they would need to triple their current 401-k contributions. They tend to spend more than they make each month but are not sure how much more. They know they have too much credit card debt, and they don’t have enough money set aside for family savings in the categories of emergency, gifts, medical, or vacation. Each month Gary’s payroll deductions include $367.45 for federal income tax, $162.50 for state income tax, and $378.68 for their FICA (Social Security and Medicare) tax. Currently $34.17 is being deducted and deposited into Gary’s 401-k. The priority for the Davidsons right now is getting on top of their credit-card debt. Their current MasterCard balance of $4,730 is being assessed an 18% APR finance charge and they have a minimum payment of $95 monthly. They are hoping to pay off their debt within two years but this would require that they increase their monthly credit card payment to at least $236.14 to meet their goal. The family bought a home 5 years ago for $250,000. Their loan is for 30 years at a fixed rate of 6% APR and their monthly payment is $1,349. To safeguard against theft, fire, and other calamities, they carry homeowner’s insurance with an annual premium of $984. They are insuring their home with a different company than their vehicle insurance company and hope to combine both types of policies with the same insurer to save 15% on premiums. The Davidsons pay $675 every six months for county property taxes on their home and lot. They currently pay a monthly cable TV bill of $65.49, a landline phone bill of $32.50, an Internet provider bill of $43.68, and a cell phone bill of $109.45. Their utility bills for electricity, natural gas, and water/sewer/garbage are $39.56, $89.75, and $53.49 respectively. The Davidsons are a two-vehicle family. They own an older mini-van that is paid for, but recently purchased a brand-new Ford F-150 4×4. They had to borrow just under $30,000 at a 7% APR, which resulted in a $586 monthly payment. They have estimated that they spend about $360 per year on vehicle maintenance and their vehicle insurance premium is $468 every six months. Lately, they have been averaging about $150 per month on gasoline for the van and truck combined. Because the family rarely plans out their weekly meals or uses coupons, $635 is a typical monthly average on groceries. They eat out quite often and spend about $125 at restaurants. Both Gary and Michelle belong to a local health club and spend $48 per month on membership dues, their clothing expenditures average about $90 for the family, entertainment is $65, household supplies about $35, miscellaneous items $70, and their monthly dog food and vet bills for their golden retriever average about $42. They also pay approximately $60 to various charities each month. Finally, the Davidsons are doing their best to protect the family with health and life insurance policies. Currently they pay $197.89 (their monthly share of the company’s health insurance package) and $47.82 (their quarterly life insurance premium).

Questions: What was the original (status quo) net monthly cash flow for the Davidsons? What did this tell you about the family’s financial situation? What percent of their monthly gross income is dedicated to the combination of their mortgage, homeowner’s insurance, and county property taxes? Do you think this percentage is realistic, or too high or too low? Explain why. You must show your calculations for this question. What percent of their monthly gross income is dedicated to vehicle expenses? Do you think this percentage is realistic, or too high or too low? Explain why. How would you find the line between affordable and not affordable in terms of a vehicle? You must show your calculations for this question. What are the 6 specific financial goals that the family has stated they want to achieve? List 2 additional goals that you would recommend for the family and explain why you think they should be goals. List at least 5 creative but realistic recommended changes to their budget, and include an explanation of why you think the changes are realistic and how the changes will help them achieve their goals. Reflect on the personal impressions you had as you put together the Davidson’s original budget and how this activity might impact your future financial decisions.

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