The purpose of this assignment is to apply sound financial principles and practices to the management of one’s own finances by creating and evaluating a comprehensive personal budget. In Part 1, students will estimate future income, expenses, and taxes and create a budget in Excel. In Part 2, students will evaluate their budget by analyzing their financial goals, savings, and spending patterns. Part 1: Create Excel Budget Create a monthly and annual pro forma postgraduation budget in Excel using the attached “Personal Budget Template.” Estimate the income you will earn from the post-graduation job you aspire to, and where you would like to be living, the year after graduation. Research a realistic starting salary and cite any sources you use (the specific URL). If a salary range is provided in your source, use the low end if you are “entry level” unless you have experience that justifies a higher assumption. Show payroll taxes (Social Security and Medicare) and income taxes you will pay. Indicate how much, if any, you are intending to contribute pre-tax to an employer-sponsored retirement savings plan (e.g., 401(k) or a traditional IRA). Then, calculate the federal and state income taxes you will pay based on the state in which you expect to reside. See the “Tax Calculation Worksheet” in the topic Resources, to help you calculate your expected effective federal income tax rate based on current tax rates. After calculating your estimated take-home pay, estimate your monthly savings and expenses for the categories shown assuming you are living independent from your parents. If a category is not listed, show those in the “other” lines, and replace “other” with the new expense name. Make sure all your dollars have a purpose; you should manage your budget to a zero balance at the end. Document your sources and/or key assumptions in Column I on the right of the spreadsheet. Part 2: Evaluate Your Budget Evaluate your budget. Be thorough; the paper should be 1,250-1,500 words. Follow the format below (each section in bold should be a Level 1 Header in APA format). Introduction Describe the basis for your budget. What occupation and job do you aspire to right after graduation? What city do you want to live in? What is the purpose of this paper? Personal Financial Goals Identify at least one short-term, one intermediate-term, and one long-term financial goal you anticipate having upon graduation. Be sure to adhere to the SMART framework (see Chapter 1 in your text). How do each of these goals reflect your personal values? Income and Taxes Paragraph 1 How did you arrive at the beginning annual salary for the job? Do you think this is a realistic entry-level position? If not entry-level, what qualifies you for a more advanced position? Will you have a second job or income source to supplement your primary income? Paragraph 2 What is your total tax burden as a percentage of your gross income? Does this amount surprise you? You calculated your effective federal income tax rate; what is your marginal federal income tax rate based on this year’s tax tables? Does your state have a state income tax? If you chose to contribute to a 401(k) or traditional IRA (versus a Roth IRA), what are the tax implications for doing so? Savings Paragraph 1 Calculate your savings ratio (Total savings/Income after taxes). Include payments to reduce debts as part of your savings. The 50/30/20 budgeting technique discussed in our text suggests 20% of your after-tax income should go toward “saving, investments, building up and maintaining an emergency fund, and payments to reduce debts.” How close are you to that rule of thumb? Paragraph 2 How much are you contributing each month for long-term retirement savings (include both pre-tax and post-tax contributions)? Based on these monthly savings, assuming no increases to income or contributions and using the =FV Function in Excel, what is the future value of your investments after 40 years, earning 9% compounded monthly? (Copy and paste your Excel function formula.) What would be the impact to your nest egg if you decided to retire after 30 years instead? Spending Paragraph 1 The 50/30/20 budgeting technique suggests 50% of your after-tax income should go toward needs (living expenses and necessities such as rent, utilities, groceries, insurance, and transportation) and 30% goes toward wants (such as eating out, movies, and entertainment and travel). How close are you to that rule of thumb? Paragraph 2 The cost of housing is typically the largest expense for individuals and families. Based on your budgeted expenses, what percentage of your take home pay is housing? If you have the option to initially live at home, how much would this save you per month in total housing costs? What are the opportunity costs of doing so? Would you otherwise be financially independent from your family? Giving Did you incorporate charitable giving in your budget? Why or why not? How does this decision align with your values? If you did not include charitable giving, at what point in the future would charitable giving be warranted? What are examples of charities that align with your values? Conclusion Provide a strong conclusion that aligns with and evolves from the development of your paper. Does your budget move you closer to achieving your goals? What are 2-3 things you learned or observed preparing your budget? Did anything surprise you? How might a budget help you in the future? Include a cover page. Provide section headings (Introduction, Personal Financial Goals, Income and Taxes, Savings, Spending, Giving, Conclusion). References page: Include any references specific to your paper; references used in your Excel budget can be listed in Column I on the spreadsheet. Submit BOTH your Excel budget spreadsheet AND the Word document evaluating your budget. General Requirements You may use artificial intelligence (AI) tools to help with this project, but use of generic output without thoughtful personalization will work against you. This project is to reflect your personal evaluation, so use AI sparingly if at all. Prepare this assignment using effective business writing style. Refer to the resource “Effective Business Writing,” located in Class Resources, for specific guidelines and formatting requirements. This assignment uses a rubric. Please review the rubric prior to beginning the assignment to become familiar with the expectations for successful completion. You are required to submit this assignment to LopesWrite. A link to the LopesWrite technical support article is in Class Resources if you need assistance. Benchmark Information
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