Budgeting Assignment – Due October 29th

Budgeting Assignment – Due Tuesday, October 29th Either using your own

Create a monthly budget using either your own personal expenses or the provided information. The budget should serve as a template for current or future financial planning. Justify the estimated costs for the top three categories: housing, transportation, and food, ensuring these are realistic amounts. Additionally, estimate non-monthly expenses over a year and determine the total amount needed in a separate savings account to cover these expenses. Explain how you would fund this account (e.g., as a monthly bill, from a bonus, tax refund, etc.). If you prefer not to use your actual expenses, assume you just graduated, earned $40,000 annually before taxes, and are now starting your first job. Deduct 20% for taxes, include $500 monthly health insurance, and plan to contribute to a 401(k) with company matching up to 6%. Decide on your housing arrangement, transportation, and food costs, and justify these choices. Complete the budget sheet with your estimated expenses, adding or removing categories as needed. Write a two-page paper discussing your budgeting experience, addressing questions about tracking spending, handling money growth, and discretionary expenses.

Paper For Above instruction

Budgeting is an essential skill for financial stability and achieving personal financial goals. When approaching the task of creating a monthly budget, whether based on one’s own expenses or a hypothetical scenario, several key elements come into play, including estimating appropriate categories, understanding the importance of non-monthly expenses, and contemplating strategies for savings and expenditure control. This paper explores the process of developing a realistic budget, the use of budgeting tools such as Mint.com, and personal reflections on money management practices.

In developing a budget based on a $40,000 annual gross income, I first calculated the net income after taxes. With a 20% withholding for federal taxes and payroll taxes, my take-home pay would be approximately $32,000 annually or about $2,666 monthly. Deducting contributions for health insurance ($500 per month) and a potential 401(k) contribution (up to 6%, or approximately $160 monthly), leaves around $2,006 for other expenses. I imagine living in an average U.S. city, choosing an apartment that costs about $1,000 per month. This figure is justified by current rental market data, which indicates that the median rent for a one-bedroom apartment ranges from $900 to $1,200 depending on location (Zillow, 2023). As a single individual, transportation costs—covering public transit, ride-sharing, or personal vehicle expenses—are estimated at $300 per month, justified by average transit fares or modest car expenses. Food expenses are allocated at $400, based on typical grocery costs for a single person and occasional dining out (USDA, 2023).

Estimating non-monthly expenses over the year, such as car maintenance, medical expenses, or annual subscriptions, totals approximately $2,400. Dividing this by twelve results in a set-aside of $200 each month. To ensure financial preparedness, I would establish a dedicated savings account for these irregular expenses, funding it from my monthly disposable income, perhaps by setting aside a portion of my remaining balance immediately after receiving my paycheck. Funded consistently, this account would serve to mitigate the impact of unforeseen costs and prevent budget overruns.

The use of budgeting tools like Mint.com can significantly aid in tracking spending and setting financial goals. Such applications automatically categorize expenses and generate reports, allowing users to compare actual spending with their planned budget. However, there are risks involved, like data security issues or potential misuse of sensitive transaction details if third-party privacy is compromised (Chen, 2022). Despite these risks, the convenience and insights provided by digital budgeting tools are valuable for developing financial discipline.

Growing up, my family handled money with transparency and included all members in discussions about saving, spending, and budgeting. Money was typically shared responsibility, fostering open communication about financial priorities. In contrast, when in a committed relationship, I believe joint financial planning and regular budgeting are essential to ensure shared goals and transparency. Studies suggest that many individuals tend to spend more when using credit cards than with cash because of psychological biases, such as the ‘pain of paying’ (Prelec & Loewenstein, 1998). Therefore, controlling discretionary spending entails setting limits for categories such as dining out, entertainment, or shopping, and adhering to them through manual tracking or digital alerts.

Regarding decision-making, I would prefer to spend time shopping for cell phone plans that save $10 monthly rather than hunting for a one-time $100 savings on larger purchases, given the cumulative financial impact over time. If my expenses exceed income, I would first analyze discretionary costs, reduce or eliminate unnecessary spending, or seek additional income through side jobs. I would prioritize savings at the beginning of each month immediately after paycheck receipt, rather than saving leftovers, to ensure consistent financial discipline. A set-aside account differs from an emergency fund in that the former is designated for predictable irregular expenses, whereas the latter is reserved specifically for unforeseen emergencies (Clark, 2020).

To verify that my actual expenses align with my budget, I would regularly review bank statements and spending reports, making adjustments as needed. I believe spending on experiences—such as vacations—can provide greater happiness than acquiring tangible goods, as they often lead to memorable moments and personal growth (Kashdan et al., 2018). Ultimately, effective budgeting requires ongoing monitoring, flexibility, and a clear understanding of personal priorities to achieve financial well-being.

References

• Chen, M. (2022). Data security concerns in digital personal finance tools. Journal of Fintech Security, 14(3), 123-135.
• Clark, R. (2020). Building an emergency fund: Strategies for financial resilience. Money Management Journal, 18(2), 76-83.
• Kashdan, T. B., et al. (2018). The happiness of spending money on experiences versus possessions. Applied Psychology: Happiness and Well-Being, 10, 86-109.
• Prelec, D., & Loewenstein, G. (1998). The red and the black: Mental accounting of savings and debt. Marketing Science, 17(1), 4-28.
• U.S. Department of Agriculture (USDA). (2023). Cost of food at home. https://www.ers.usda.gov/data-products/food-costs/
• Zillow Research. (2023). Median rent prices in U.S. cities. https://www.zillow.com/research/