Personal Finance Concepts - Essay Example

Personal Finance Concepts The Data which we have on hand for the Budget of Donna and Sherman Terrel is as follows: Income Amount Expense Amount Monthly ExpenseIncome Donna Terrel39,996Housing6,600550Income Sherman Terrel9000Transportation5,100425Scholarship Sherman Terrel3600Food8100675Income Spring Break Sherman1500Utilities3000250Payroll Taxes Donna120001000Payroll Taxes Sherman 1750Life Insurance (May)720Auto Insurance (Jan)1500Vacation (May)1200All other Leisure1800150Clothing1500125Others3900325Total54,09647,1703500This budget does look it is in order in a cursory examination.

However this table does not give us the whole story and for that purpose we need to examine this budget from a cash flow standpoint of view.MonthIncomeExpenseSavings Limit( $600)January33333500+1500=5000-1267 ( Unacceptable)February3333+2400 =57333500966March33333500799April33333500632May33333500+720+1200-1455 ( Unacceptable)June3333+4500=68333500+7501128July3333+3000=63333500+5003461August3333+3000=63333500+5005794September333335005627October3333+1200=453335006660November333335006493December333335006326The Assumptions made are: Housing, transportation food, Donna’s Payroll taxes, Clothing, Other Leisure and others are evenly divided over the 12 month period.

Sherman’s payroll taxes are evenly divided among the three months he works. A further assumption is made that there is a proportional deduction for the extra spring break work provided by Sherman’s employer.An Examination of this Budget from a monthly cash-flow standpoint of view presents a few problems for the Terrels.1. In January the Terrels are more than $1267 short than where they need to be. Though it is a temporary shortage, it needs to be addressed.2. In May there is again a Temporary Shortage of $1455 ( including the $ 600 threshold level in Savings)The Solution for the January Shortage perhaps would lie in curtailing all non-essential expenses (Clothing, Eating Out, Others and Other leisure and possibly postponing any payments (if allowed) to February.

The Solution for the May Shortage is possible if the Vacation is postponed to fall. It is understandable that the Terrels want to take a vacation when Sherman’s Academic schedule permits; hence perhaps a vacation during the fall break would be acceptable.The Extra $ 1500 for working during April has been accounted for and will not make a difference to the budget from a cash flow standpoint of view. It could make a difference if Sherman can negotiate a payment in the month of May from his employer.

If these two issues are addressed, The Terrel’s budget is a viable one.References:1. Bernard J. Winger and Ralph R. Frasca , Personal Finance : An Integrated Approach ( Prentice Hall) 58.2. Fred Rewey, Winning the Cash Flow War: Your Ultimate Survival guide to making money and keeping it ( Wiley ) 14.3. G Victor Hallman and Jerry S. Rosenbloom, Personal Financial Planning ( Mcgraw-Hill) 12.