FIN 420 Week 1 Financial Goals and Budgeting Example

Where Does $7,900 a Month Go? Turning a Phoenix Couple's Vague Hopes Into Dated Goals and a Zero-Gap Spending Plan

[Student Name]

University of Phoenix

FIN/420: Personal Financial Planning

Week 1 Assignment

[Instructor Name]

[Date]

The Whitfields and their figures are composites written for a model paper; planning methods and research findings come from the sources listed.

Jasmine Whitfield, a composite 32-year-old dental hygienist, and her husband Andre, 34, a bus mechanic for the city of Phoenix, earn a combined $118,000 a year. After taxes, retirement contributions and health insurance, about $7,900 reaches their checking account each month. They rent a two-bedroom apartment, drive two financed cars and have a four-year-old daughter, Maya. Each month their checking balance falls close to zero, and twice this year they paid a car repair with a credit card. They want to buy a house, pay off debt and start saving for Maya. They did not lack income; they lacked a map of where it went and a plan for where it should go. This paper builds both.

Three Months of Records

Rather than estimate, the couple exported three months of bank and credit card transactions and sorted them into categories. The result surprised them. Rent was $1,850 and child care $1,100, as expected. Groceries were $980 a month, but restaurants and takeout added another $640. Subscriptions for streaming, apps, a gym neither used and a meal kit totaled $215. Car payments were $820 for two vehicles, with gas and insurance another $560. Credit card payments averaged $410, and $300 a month disappeared into small purchases at stores and online that neither could recall. Irregular costs, a car repair, a wedding gift and a utility deposit, averaged $350 a month across the quarter.

The Balance Sheet

On a single date, the Whitfields own $3,200 in checking and savings, two cars with a combined value of $31,000 and retirement accounts worth $46,000, Jasmine's 401(k) and Andre's city pension contributions. They owe $27,500 on the car loans, $9,800 on two credit cards and $21,000 on Jasmine's student loans. Their net worth is about $21,900. The balance sheet shows that the cars are worth only a little more than the loans on them and that they have almost no money available for emergencies.

The Cash Flow Statement

Monthly take-home pay of $7,900 is set against spending. Fixed costs, rent, child care, car payments, insurance, utilities, phones and the minimum student loan payment of $230, total about $5,170. Variable costs, groceries, restaurants, gas, subscriptions, small purchases and irregular items, total about $2,830. Spending equals income, with nothing left for savings beyond retirement contributions and nothing extra toward debt.

From Wishes to Goals

Planning texts recommend goals that are specific, measurable and dated (Kapoor et al., 2020). The couple's wishes became five goals, in priority order. First, a starter emergency fund of $3,000 within ten months, then $15,000, about three months of essential spending, within three years. Second, the $9,800 of credit card debt paid off within 18 months. Third, a down payment of $24,000 for a house within four years, funded mostly by money freed when child care ends and the cards are paid off. Fourth, Jasmine's 401(k) contribution raised to capture her employer's full match. Fifth, $100 a month into a college savings account for Maya.

The Spending Plan

A zero-gap plan assigns every dollar of take-home pay a job, so that income minus planned spending and saving equals zero. The couple chose cuts they could live with. Restaurants and takeout fell from $640 to $300, with a standing Friday pizza night kept on purpose. Subscriptions fell from $215 to $60 after canceling the gym and meal kit. Unplanned small purchases were capped at $100 each, given as personal allowances. Groceries rose slightly, to $1,050, to replace some restaurant meals. Shopping their car insurance saved another $75. Together the changes freed about $600 a month.

The freed money, plus $50 from switching phone plans, was assigned: $300 to the emergency fund, $250 above the minimum to the credit cards and $100 to Maya's account. An irregular-expense category of $350 a month now sits in a separate savings account, so car repairs no longer land on a credit card.

Why Earlier Attempts Failed

The Whitfields had tried budgeting twice before with spreadsheets they stopped updating. Thaler and Shefrin (1981) described self-control as a conflict between a far-sighted planner and a present-focused doer, and argued that people use rules and commitments to restrain the doer. A plan that depends on deciding each month to save will lose to that month's temptations. Automatic transfers on payday, to the emergency fund, the irregular-expense account, Maya's account and the extra card payment, move money before the doer sees it.

What Knowledge Adds

Lusardi and Mitchell (2014) reviewed evidence that people with greater financial literacy are more likely to plan for retirement, accumulate wealth and avoid costly borrowing. The couple's discovery that their credit cards charged 24 percent while their savings earned almost nothing was itself a lesson in literacy, and it shaped the order of their goals.

Monthly Review

On the first Sunday of each month, the couple will spend half an hour comparing actual spending with the plan using their bank's category report, move money between categories if needed and record progress on each goal. A category that runs over two months in a row will be reset rather than ignored.

Who Does What

Budgets fail in couples as often from unclear roles as from overspending. Jasmine and Andre agreed that Jasmine would set up the automatic transfers and the monthly category report, while Andre would handle the irregular-expense account and keep receipts for car repairs. Each now has a personal allowance that requires no explanation to the other, which ended most of the small arguments that used to follow a surprise charge.

When to Revise

The plan will be revised when income changes, when child care costs fall as Maya starts kindergarten, freeing $1,100 a month in about a year, or when a goal is met. The child care savings are already assigned: half to the down payment and half to retirement.

Conclusion

Three months of records showed the Whitfields where $7,900 a month went. A balance sheet and cash flow statement gave them a clear starting point, dated goals gave them direction and a zero-gap plan with automatic transfers turned good intentions into $650 a month of saving and debt repayment without making daily life miserable.

References

Kapoor, J. R., Dlabay, L. R., Hughes, R. J., & Hart, M. M. (2020). Personal finance (13th ed.). McGraw Hill Education.

Lusardi, A., & Mitchell, O. S. (2014). The economic importance of financial literacy: Theory and evidence. Journal of Economic Literature, 52(1), 5-44. https://doi.org/10.1257/jel.52.1.5

Thaler, R. H., & Shefrin, H. M. (1981). An economic theory of self-control. Journal of Political Economy, 89(2), 392-406. https://doi.org/10.1086/260971