Economics Budgeting Exercise Name ________________________

1. For this project, you are going to receive a $32,000 annual salary. This is called gross income.

2. TAXES!!!!!
Now, time to figure out how much you’ll owe in taxes…

● Go to: http://www.bankrate.com/calculators/tax-planning/1040-ez-form-tax-calculator.aspx

● Enter your annual salary into “Wages, Salaries, Tips, etc.” Leave everything else as is.

● Income Tax (In Dollars): $_____3,680_____________________

● Subtract this tax amount from your annual salary. This is your “net income,” or how much you will actually
have to spend. But people don’t budget yearly, they budget per month, so you will need to calculate your
monthly net income. Complete the math problems below to find your net monthly income.

(Annual Salary)-(Income Tax from above)= $____34,315______________Net Income

(Net Income) / (12) = $______________2859______________ Net Monthly Income

This is your total monthly allowance for everything you will need to buy.

COLLEGE- If you know where you are going next year, just use that school to find TOTAL COST information.

College Name: ________George washington university __________________________

College #1: $_______89,870___________/yr total cost x (# of years you will attend) = $ ______239,838_______

Total Cost of College #1= $_______________329708___________________

How much of this college tuition do you already have saved up either in savings, financial aid, college scholarships,
grants, anything? (you may have to ask your parents)? $_______50k_________

The rest you’ll have to borrow. What will your total loan amount be? $ ______________________ (use this number on
the next page)
Question: What are your thoughts on the total amount paid for college? Does that scare you? Does that make you
happy (especially if it is paid for)? Are you nervous? Explain.

You will need to pay the college loans off in the subsequent 10 or 15 years after graduation.

● Go to http://www.bankrate.com/brm/popcalc2.asp and calculate how much your monthly loan payment

would be to borrow this much money for BOTH 10 years and 15 years. Assume you can get an interest rate of
5%. You will need to choose whether
you will take the 10 year loan or the
● Monthly loan payment for 10 years $ _____________
15 year loan. WATCH OUT. There is
a tradeoff on these loans. Either pay
(take the $ above x 12 x 10 to find the number on the next line. more per month and less over the
life of the loan, or pay less per
● Total paid: 10 years_____________________ month and more total.

● Monthly loan payment for 15 years $ _____________

(take the $ above x 12 x 15 to find the number on the next line.

● Total paid: 15 years_________________

Which will you choose? Why? (Answer below)

GRADUATION!!! You have successfully graduated from college! Now it is time to move wherever you want in the
USA.

Apartment: FINDING A PLACE TO LIVE

Now it is time to find an apartment because it is too expensive for you to be buying a house quite yet. Also, you may
move wherever you want in America

----What can you afford? A good reference point is to not use more than 30% of your total monthly income on
housing. To find your total allowance based on this figure compute the following:

(.30) x $__________________(net monthly income, in dollars)= $_________________housing allowance

- Go to one of the following websites and find an apartment you’re willing to live in. Things to consider:

Good location (less crime), off-street parking (less chance of damage to your new car), enough space for you, pets
allowed (or not allowed depending on your preference), are utilities included (less costly), furnished (with bed and
furniture), appliances included (refrigerator, stove, microwave, dishwasher, etc.), washer and dryer, laundry facilities,
pool, workout room, more families (which mean kids) or single people, availability to transportation (trains and other
public transport). YOU MAY NOT MOVE INTO A RETIREMENT COMMUNITY!!!

For your information: a studio apartment is one big room with a bathroom. Kind of like the classroom but with a
bathroom that is separate. A 1 bedroom apartment has a separate bathroom, a separate living space, and then a
separate bedroom with walls and a door. A 1 bedroom therefore is more private than a studio.

● www.apartmentguide.com

● www.apartments.com

● www.apartmentsearch.com

Find two possible apartments:

Square Feet
Mr. Anello’s
 City, State price/month classroom is 675 sq. best qualities
ft. for reference.

Apartment
#1-

Apartment
#2-

What is your decision? What is that decision based on? Are you happy with your decision?

Total cost for Apartment/month: $_______________

You will need to buy certain items for your apartment. A couch, a bed, some furniture. You will have to budget for that

so add the following per month to pay for those items: $50/month

TRANSPORTATION – How will you get around?

New or used? If you’re going to go used, go to www.carmax.com and find a used car you’d be happy with. If you want
new, go to the car dealers’ websites and find the car you will drive for at least the next three years.

Research 2 cars

Make/Model Total Price MPG: miles per gallon Miles (in thousands)
(average the city and
highway values)

Car #1-

Car #2-

Which car did you choose and why? Are you happy with this purchase?

Total price for the car you chose: $____________________________

● Go back to http://www.bankrate.com/brm/popcalc2.asp and figure out what your monthly payment will be
for this car
● Interest Rate=2%

● Loan amount=$$$$$ (TOTAL PRICE OF CAR)

● Loan term= 5 years

● Be sure to hit ‘calculate’

 ● monthly car payment= $_________________________

GASOLINE:

Oh wait, now you need to buy gas for the year. Based on the national average of 10,000 miles per year, you will need
to adjust your gas mileage. Calculate the following:

10,000 (#of miles driven this year) / (your car’s MPG) =_____________gallons of gas used this year

(# of gallons) x $3.75 (yearly average for gas)= $____________________yearly gas money

(Yearly gas money) /12 (months) =$ __________________monthly gas money

NOW you must figure what your monthly car insurance payments will be. In Illinois, the average amount of insurance
payment per month is $121. Being a young driver, assume your insurance will be $180/mo.

o Do you have a “B” average in school right now? If so, subtract $30 per month for good driver discount.

Enter your FINAL monthly car insurance payment (circle): $___$180__or__$150__________

Cell Phone- IF YOU CAN AFFORD ONE!

Do you want to get a cell phone? It is more expensive than a telephone service at your residence, but it does have the
ability to travel with you. If you want a cell phone, you will have to pay for it. Find a cell phone plan that works for you.
Go online to different companies and price out a plan (you are no longer allowed to be a “second” phone on your
parents’ plan). Do not cheat! If you text all the time, you better have a texting plan, or be prepared to not text…EVER!

-If you do not plan to, do not need, or can’t afford one, put ZERO DOLLARS PER MONTH.

What company did you go through?

What does the plan cost? $___________________/month

FOOD: What will you buy in a typical week of shopping? Let’s see how much it will cost… (Be careful because if you
navigate away from this page, you will lose your grocery cart full of goods!)

1. go to www.peapod.com
2. Click on “new customers” and “groceries for your home.” (bottom left)
3. Enter your zip code and begin shopping. You should buy enough for ONE WEEK’S worth of meals.
a. One week’s food should consist of: 7 dinners, 7 lunches, and 7 breakfasts (unless you plan on dining out
during the week. In that case, subtract the number of times you will dine out by the meals you will buy)
4. When you are done, look at the total in the upper right hand corner of the page.
 5. You must have vegetables, fruits, meats, dairy, etc. Follow your food pyramid.
6. CALL YOUR TEACHER OVER TO VERIFY THIS and have me initial here: ***___________________***
7. Multiply this total X 4. Enter that total below.

TOTAL FOOD COST? $ ________________/month

OTHER LIFESTYLE CHOICES:

1. Will you have cable television?

o If yes with movies, add $60/month
o If yes, without movies, add $48/month
o If you have a DVR, add $10/month to above costs
o If you want a ‘cable-less’ option, you must buy internet and pay $15/month here

Choice= $_____________________________

2. Will you have internet service?

o If yes, broadband internet add $50/month
o If yes, dial up add $20 month

● Choice= $_____________________________

3. Will you have a phone in your apartment? (you may choose to ONLY use a cell phone)
o If yes, add $30/mo

● Choice= $_____________________________

4. How many times per week will you go OUT to eat a meal?
o For each time you’ll go out, add $10 per meal (additional cost compared to groceries)
 ● Choice= $_____________________________

5. How much (on average) will you spend having fun (including weekends) during a typical week?
o Multiply this amount times FOUR. This will be your monthly social cost.

● Choice= $_____________________________

6. How many people in your life will you buy gifts for in a given year? (Xmas, birthdays, etc)
o How many people will you buy presents for during the year? _______ How much will you spend on a
present for each person (on average)? $______________
o Multiply (# of people) x (average spent on present) / (12) = $_________________________

● Choice= $_____________________________

7. How much money do you anticipate you’ll spend a month on clothing/shoes?

o At the very minimum you MUST enter $25 to cover replacing worn out clothing

● Choice= $____$25+_______________________

8. Will you go on any vacations? (www.orbitz.com)

9. You will have to factor in $100/day spending money as well.
-Where did you go? What hotel are you staying at?

o Add up the annual cost of your vacation (s) and divide this amount by TWELVE. This will be your monthly
vacation cost.

● Choice= $_____________________________

10. Contingency money is money you set aside for unexpected expenses. These might include getting car repairs,
small expenditures (Starbucks, tanning, hobbies, cleaning supplies, car washes) that wouldn’t be included in
other areas.
o Assume a monthly cost of $75 for contingency money

● Choice= $_____________________________

11. How much, if any, are you going to put into your savings account each month? (It will be the remainder of your
net salary per month)
OK…NOW IT’S TIME TO FILL OUT A BUDGET SHEET…..

BUDGET SHEET
EXPENDITURES
Monthly College Loan Payment $ Income:
Monthly Rent $
Your Net Monthly
Income:
Utilities (gas, water, electricity) $ 80
Furnishing your apartment $ 50 $________________
Car Payment $

Monthly Gas Bill $

Monthly Car Insurance $150 or $180 (circle

one)

Cell Phone Service $

Cable Television $

Internet Service $

Landline Phone Service $

Meals Out Cost + Food Cost $

Monthly Social Cost $

Monthly Gift Cost $

Monthly Clothing Cost $

Monthly Vacation Cost $

Contingency Money $ 75
TOTAL MONTHLY COSTS $
Monthly Savings (income) - $
(costs)

You MUST get your monthly TOTAL MONTHLY COSTS (including your savings) to be equal to NET MONTHLY INCOME.
If it is not, go back and lose some of your costs. You must prioritize to make sure you can afford the lifestyle you have
chosen. Once you have balanced your budget, answer the questions on the back: (note, a LARGE part of your grade
will be on how extensive your answers to these questions are)

SUMMARY QUESTIONS: Your answers must be well thought out and explained

1. What monthly costs surprised you? Which ended up being more than you thought?

2. What , if anything, did you have to give up in order to balance your budget? How did you prioritize?

3. Will your budget leave you with a BETTER standard of living than you currently enjoy now? In other words, are
you able to have/do more now or with this future scenario? Be specific about the changes.

4. What are some ways in which you can have all of the things you’d like to have?
5. How will you better plan for your future now that you have completed this real budget simulation? Will you
start saving up now or will you wait until you ‘grow up’?

6. Imagine trying to buy a house on the salary you used for this exercise. A $200,000 house will cost you roughly
$1,000 per month in mortgage payments, and $100 to $200 per month in property tax. What MORE would you
have to sacrifice to make this work? What would you choose to get rid of first? What would be the last to go?