Mr. Norton’s Economics Budget Project
You will be creating a budget to allow you to live the life you’d like, as well as obtain the skills and education you need in order to get there. This will include finding a house, finding a car, developing a budget, and finding a career that would match your income needs. This project does involve doing some calculations and setting up a budget on Excel, but its main purpose is to allow you to have fun dreaming of the future while realizing what these dreams may cost. I also hope you observe certain iron realities about work and what it takes to be a successful adult in California today. It is not easy. It takes lots of money!
At the beginning of the project, you will select your own career choice and construct a working budget for that option.
No matter what that job may be, you must construct a working budget with costs less than expenses.
When completing this project, include print outs from any sources you received your information. For example, when you choose a car, print out the statement which shows the car’s cost and potential monthly rates. The same goes for a house.
**To receive maximum credit, the project should be typed, double-spaced, size 12 font, using Times New Roman or Garamond typeface. Further, you will need a table of contents as well as clearly divided sections. **
The Project, at a glance. (After this page, I give a much more detailed explanation of each section)
1. Research your careers, finding general information and average wages.
o This portion of the project will be typed up and must be at least a half page of information on your job.
2. Create a monthly budget plan based on your careers. Here you will give a brief explanation of your plans for each aspect.
o This budget will include information on
§ Income
· Monthly Income from your job.
§ Expenses
· Rent/mortgage payments (depending on your income)
· Student Loans (if you were given a career that requires college education)
· Utilities Bills (electricity, water, garbage, gas, cable, internet, etc.)
· Cell Phone Bill
· Food
· Entertainment
· Car payments
· Gasoline for your car
· Car Insurance
· Medical Bills
· Taxes
Breakin’ it Down!
Each section should be clearly marked and given a section to better detail the information you’ve collected. You should include a table of contents to better assist Mr. Norton when grading your project.
1. Research your Careers
a. Career Choice - Now it’s time to find a career! After you’ve been given your randomized career and you’ve decided on a career of your choice, please use the government’s website “Occupational Outlook Handbook” to determine basic information and annual income for your careers. If you’re having trouble deciding on a career, this website is easy to use and will help you choose one.
i. http://www.bls.gov/ooh/
b. General Summary - You should give a general summation of your careers’ expectations and requirements. Include information on how much school is required as well as any other potential requirements for that job. This should be typed and at least a half a page.
c. Career Prerequisites - If your jobs require college education or any other type of professional school, you will need to determine the cost to complete the college requirements. For ease, simply add $300 a month in your budget to pay for student loans.
d. Income – Here is where you will calculate your monthly and yearly income. You must use the lowest income (the starting salary or wage) averages that are provided on the website given above. Once you’ve determined the gross income, you will have to calculate your net earnings by calculating how much will be taken by taxes, including Federal, State, and Social Security.
i. State Taxes – https://www.ftb.ca.gov/online/Tax_Calculator/
1. Using this website, click the link that reads “2011 Tax Calculator” and on the following page, type in your gross annual income. This tool will give your estimated state tax liability.
ii. Federal Taxes – http://www.calcxml.com/calculators/federal-income-tax-estimator
1. Using this website, fill in the calculator with information from your job.
a. Tax filing status – For our purposes, please select the “single” option.
b. Gross Annual Income – This is where you type in your total annual income.
c. Qualified plan/IRA contribution – You may leave this blank.
d. Itemized deductions – You may leave this blank.
e. Number of personal exemptions – Leave this option at 2.
f. Number of dependent children – Leave this set at 0.
2. After you’ve filled in the information, you may press submit and then it will give you your estimated federal tax liability.
iii. Social Security –
1. Multiply your annual gross income by .0765 (7.65%) to get your estimated social security liability.
iv. Final Net Adjusted Annual Income (cash in your pocket)
1. Add together the federal, state, and social security taxes. This will give you your total tax liabilities. Then subtract this number from your gross annual income to determine your Net Adjusted Annual Income.
v. Example –
1. Lawyer - $112,000 = gross annual income
a. State - $8,064.00/year
b. Federal - $21,026.00/year
c. Social Security - $8,568.00/year ($112,000 x .0765)
d. Total Taxations = $37,658.00
2. Net Adjusted Annual Income = gross income minus total taxations
a. 112,000 – 37,658
b. Net Income = $74,342.00
2. Create Your Budget!
a. After you’ve calculated your net income for the year, divide that number by 12 and this will be your monthly income. (In the example above, $74,342.00 ÷ 12 = $6,195 per month.)
b. You will write a brief explanation for each of these aspects that shows all of your numbers for your budget.
c. Housing
i. After you’ve calculated how much you can spend per month on housing, you should go find a hypothetical place to live. Search the internet for an apartment/condo/home and print out the proof.
ii. You may choose to have roommates, which will help you divide the rent and utilities costs in half or more depending on how many people you live with.
iii. Remember, you MUST create a working budget, so don’t get too overzealous with an MTV cribs style house.
d. Automobile
i. After you’ve calculated how much you can spend per month on an automobile, you should go find a hypothetical car to drive.
ii. If you own a car, you are lucky and can skip the purchasing a vehicle portion of this project. Include a picture of your car and explain how your payments currently are.
iii. You must still calculate gas costs as well as car insurance.
iv. Purchasing a car – When you decide on a car you like, you take the total cost of the vehicle and divide the number by 72 (72 month payment plan) and this will be your monthly payment on the car you purchase.
1. If you decide on a car that’s valued at $24,000, your monthly payment would be around $333 per month. (24,000 ÷ 72 = $333)
v. Gasoline – You should determine approximately (guess, if necessary) how far you drive your car per month in mileage, determine approximately how many miles to the gallon your car gets, find the average gas prices in the area, and then calculate how much you’ll spend per month on gas. Remember to include a little extra for your own entertainment purposes.
vi. Car Insurance – Go online and fill out some free car insurance quotes to see what you’ll have to pay for car insurance on your car. Use the information on your car that you found and the insurance companies will be able to give you a general idea of what your 6 month premium would be. Divide this number by 6 to determine your monthly car insurance costs.
e. Utilities
i. This section will likely include a lot of estimation, which is fine. You must calculate how much per month you’ll be spending on utilities including, but not limited to:
1. Electricity
2. Water
3. Cable
4. Internet
5. Garbage
6. Gas
ii. Ask your parents to see your household’s bills on these things and determine by percentage your portion of the bill. For example, the electricity bill in a home of 4 could be divided by 4 to determine how much you’d pay by yourself. The same goes for water and gas.
iii. Garbage is usually all inclusive and the bill would be the same regardless of how many people live in the home. Also, if you live in an apartment complex, garbage is usually covered by the company.
iv. Internet and Cable bills are optional, but after getting to know you all, life without TV or the internet is a horrible life indeed. These bills are going to be the same regardless of how many people live in the home.
v. For extra credit, include copies of these bills (with all personal information whited or blacked out, of course).
vi. Total up the costs of your utilities and include this when calculating your budget.
f. Groceries – Food Log and other item usage.
i. Track your eating/drinking/consumer habits for one week, making notes of your meals and everything that you spend your money on. Give values to everything and find a weekly grocery/shopping cost that you can work with. Multiply this cost by 4 to get your monthly food costs.
ii. You will be turning in this weekly food journal with your values included.
iii. For example: In one week I will spend approximately $106. I then multiply this number by 4 to get my monthly food expenses, which totals $424.
iv. Remember to include non-food items in this as well; otherwise you’ll be without the essentials. Imagine a restroom break minus the TP. Usually, these items equate to around $100 per month.
g. Savings
i. You should decide on a plan on how much per month to put away. Then determine what venue you will use to invest your savings (mutual funds, retirement plans, IRA, etc.)
ii. This portion should be at least a half a page typed. Include your specific retirement plans, including what venues you plan on using to invest your money for the future.
h. Entertainment
i. You should include a modest amount of your budget to cover your entertainment expenses such as hanging out with friends, going on vacation, or any other social/family activity you can imagine. It’s important to take care of your happiness as well as your finances.
i. Misc/Other/Emergency Funds
i. Life can be very surprising at times and often things will happen unexpectedly that cost you a lot of money. This is why it is absolutely essential to create an emergency fund where you can have something to fall back on in situations that do arise. Be sure to include some money every month to put into some type of emergency fund.
j. Student Loans!
i. If you must go to college for your career, you should include a $300 per month bill that will be taken for your student loan payments. Sometimes this payment may be higher or lower, but for the sake of ease and consistency in the project, you should simply calculate a $300 per month bill to pay for your student loans.