Economics

Family Budget and Financial Plan

Project

Ben Vargas
Harry Sotiri
Ben Louttit
Period 2, Aronson
05-11-18
Part One: Family Background

Our family consists of Dale and Sarah Untermeyer, as well as their daughter

Iolande. Dale and Sarah have been married for just over 2 years, following their

marriage after they graduated from UC San Diego. Dale graduated with a B.S. in

Computer Science, and Sarah graduated with a B.S. in Political Science. Dale recently

got a job as a computer programmer at a startup tech firm called Hyperloop, One

designing software to allow for superfast transportation around Los Angeles and the

world. Sarah got a job as a Policy Analyst in local government looking for ways to

encourage better education for children under 5.

Both Dale and Sarah make about $60,000 per year, which has allowed them to

save up enough money to make a down payment on a new home. They decided that a

home in the south bay would be the best for them, and managed to find a condo in

Rancho Palos Verdes that fit their budget. They will be moving into their new home at

5630 Ravenspur Drive later this month, and are excited about the upgrade from their

small apartment to the much larger condo. They bought the unit for $550,000, with a

30-year mortgage to cut the cost down to a manageable monthly payment. Taking care

of their daughter, Iolande switches from Dale to Sarah on alternating days.

Since most of Dale’s work is done on the computer, he can work from home 1-2

days per week, allowing him to watch his daughter and work at the same time. On the

other days, Sarah is able to bring Iolande to her work, since she works in education for

young people it fits in perfectly. Dale and Sarah are both super excited for the future,

and as a preparation have put away $10,000 to invest, along with making savings

contributions to their retirement plans that their employers offer.

Part 2: Stock Portfolio
Dale and Sarah put aside $10,000 to invest in the stock market. They started

trading stocks on February 26, 2018, with an initial investment of $9,808 split between

several large, safe investments. They started with an investment in Apple, Wells Fargo,

Coca-Cola, Nike, and Amazon. They decided that to start out with they would invest in

more stable stocks, then as they gained more confidence and experience, would branch

out into riskier stocks, with a much better potential payoff. After 3 weeks, they decided

to sell 2 of their stocks, Amazon and Nike, both for a slight loss, but the stocks were

trending down and weren’t showing signs of recovering soon. Therefore they decided

to sell them and buy two different stocks, Boeing and Google. They were able to take

the money that they earned by selling their stocks to buy the new stocks while only

having to a few dollars into their cash reserve.

After the full 9 weeks, their total stock portfolio value had increased by 87 dollars.

Given a little more time and some additional management, they would have a much

better chance of increasing their money even further. On their individual stocks, they

made $150 on their Apple Stocks, $15 on their Wells Fargo Stocks, lost $100 on

Coca-Cola, lost $25 on Amazon, Lost $5 on Nike, gained $9 on Google, and gained $50

on Boeing. On the majority of their stocks, they maintained or gained money on their

investment, but on a few stocks, Boeing and Coca-Cola, they lost a significant amount

that almost offset the amount that they earned on their other stocks.

In the future, Dale and Sarah should look at either investing in more mutual funds

if they don’t want to actively manage their stock portfolio, or take the risk of investing in

stocks, but be more active with selling stocks that are starting to go bad, and buying

more of stocks that are showing significant growth over time.

Part 3: Family Budget Analysis

Income Monthly Annually

Dale Salary $ 5,500.00 $ 66,000.00
Sarah Salary $ 5,500.00 $ 66,000.00
Total Personal Income $ 11,000.00 $ 132,000.00
Federal Income Tax (25%) $ 2,750.00 $ 33,000.00
State Income Tax (8%) $ 880.00 $ 10,560.00

Disposable Personal Income $ 7,370.00 $ 88,440.00

Expenses and Savings Monthly Annually

PITI $ 2,828.00 $ 33,936.00
Car Payment $ 300.00 $ 3,600.00
Car Insurance $ 66.00 $ 792.00
Gas $ 300.00 $ 3,600.00
Family Activities $ 100.00 $ 1,200.00
Food $ 850.00 $ 10,200.00
Utilities $ 200.00 $ 2,400.00
HOA Dues $ 475.00 $ 5,700.00
Cell Phone Bill $ 90.00 $ 1,080.00
Internet + TV Bill $ 60.00 $ 720.00
Baby Expenses $ 259.00 $ 3,108.00
Diapers $ 100.00 $ 1,200.00
Total Expenses $ 5,628.00 $ 67,536.00

Savings Monthly Annually

401K $ 1,541.66 $ 18,499.92
Roth IRA $ 100.67 $ 1,208.04
Emergency Fund $ 100.00 $ 1,200.00
Total Savings $ 1,742.33 $ 20,907.96
Part 4: Family Budget Essay

Budgeting is extremely important for a young family with a new baby. Since they

have chosen to live in a fairly expensive area, and have a baby, their expenses are

quite high, totaling about 50% of their gross income. Despite this, with careful

budgeting, they are able to buy a home, rent a car, and live a comfortable life. With

their budget, they are able to see ho much money they will bring in per year, how much

of their money will go to federal and state income tax, and how much will be left over for

expenses and savings.

Before tax, they make a gross income of $132,000, which is reduced to

$88,440.00 after state and federal income tax. They can see predictable expenses like

their mortgage and car payments, as well as variable expenses like the cost of food. By

being able to see these expenses as numbers, they can make important decisions like

how often they can go out to eat, or how much they can spend on family activities.

Seeing what their predicted expenses are also allows them to plan their savings

strategy. First, they can set aside $100 per month as an emergency fund in case of an

unexpected expense. Then they can split the remainder of their savings between a

401K plan offered by their employers, and a Roth IRA that they setup. They put as

much money as possible into the 401k because of the match by their employers

increases their total savings when they retire. They also put money into a Roth IRA, to

have a tax-free source of income once they reach 60 and are getting ready to retire. A

budget is a great tool that helps the Untermeyer’s break down their income, taxes,

expenses, and savings to see where they are and to create a plan for the future.
Part 5: Conclusion Analysis

This project was a really interesting learning experience. The main thing that we

took away from the project was the importance of creating a budget. Being able to see

income, taxes, expenses and savings is a great way to improve how you use your

money. Having a set amounts of money set aside for each activity helps you to keep

track of your progress through the year, and lets you see where you use more or less

money. Additionally, by setting aside money at the beginning of the year for known

expenses like taxes, it freed up more money to be saved or invested. Being able to see

monthly expenses like mortgage and car payments made it easier to see how much

money could be contributed from their salaries to retirement savings.

This exercise was also really interesting since it shows the importance of picking

good stocks, and monitoring investments to see trends. When we picked our initial

investments we looked mainly for big name stocks that we knew about, but didn’t do a

lot of research about how health the stock. Having done this research we might have

decided to pick a different stock that wasn’t quite as popular, but might have had more

money earning potential.

At the end of the exercise, we ended up making a profit of $87.49 off of an initial

investment of $10,000. A .6% profit over 2 months is not bad, especially since not

losing money is always a good thing. With a bit more active investing we could have

probably increase your profit. If we were to invest in real life we would be more likely to

pick stocks that have a higher upside potential, with a bit more risk. While we are

young, these investments would make sense since the risk is fairly low. This project

was really interesting and we learned a lot.