Budget and Cash Management Module

  1. Use the Budget Excel worksheet to develop a budget for your client (a married couple, herein referred to as the client). You can change the spreadsheet, as needed. This is what you know:
  1. Client: Young married couple, 27 years old with two children, ages 4 and 2. Both husband and wife are employees of companies. Assume they both make the same amount of money.
  2. Home: $200,000 original balance on the mortgage, 30 year fixed-rate mortgage @ 6% annual nominal rate, monthly payments.
  3. Car #1: Toyota Camry, Original Loan, $20,000, four years, monthly payments at the rate of 5% annual nominal rate.
  4. Car #2: Hummer, Original Loan $30,000, six years, monthly payments at the rate of 6% annual nominal rate.
  5. Car #1: 15,000 miles per year, averages 20 MPG, and the expected gas prices - $4.00 per gallon.
  6. Car #2: 10,000 miles per year, average 15 MPG, and the expected gas price- $4.00 per gallon.
  7. Assume the family is living the typical middle class lifestyle.
  8. All other information, you will have to guesstimate, research, or use your own judgment.

Note: To simplify, assume all money needed for retirement is contributed to a retirement plan and is not part of the budget. Furthermore, do not worry about other long term goals (e.g., paying for college tuition of the children) at this time.

  1. List five common mistakes people make when developing a budget.
  1. Provide five tidbits of advice for an individual who must develop a budget.
  1. Emergency Funds are often stated in months. For example, a recommendation may be for a family to have cash set aside equal to six months of living expenses. How many months would you like to have in 5, 10, and 20 years? Explain.
  2. There are a variety of options for storing cash. (Notice I did not say investingcash.)
  1. Go to a bank website or other financial website (e.g., bankrate.com) and print off two potential options. List a positive and negative for each option.
  1. Go to a Family of Mutual Funds website (e.g., Vanguard, Fidelity) and find the yield on a money market account. List a positive and negative for the money market account.
  1. Based on the above, which account(s) would you select to store cash?

What else would you like to know about this subject?