Business Finance

18 April 2024
Performance Task #3

LIBUNAO, REYES, BOBIS, BRITANICO, DUENAS, CAYANAN

12 - St. Bernard of Corleone

CASE STUDY:HOW DO I BUDGET?

All of Sharon’s friends know who to turn to if they have money questions. Sharon attributes
her financial savvy to the summer jobs she has held over the past four years. These jobs
helped her save a few thousand dollars for college to minimize her student loans. Her friend,
Alana, approaches her the summer before their Senior year of high school, confessing she
has a whopping $56.47 saved for college even after working part-time jobs for the past
three years! Alana asks Sharon what she could do to manage her money more effectively.
Sharon’s answer is one word - budget.

Sharon asks Alana to describe her goals and current spending habits. Alana responds in the
following way:

“College costs a lot more than I thought, and my parents expect me to pay for my living
expenses on campus. Those are going to be around $3,000 per year! I am used to working
a part-time job and going to school, but I'm not sure I can handle both anymore. Budgeting
seems like a great idea, but where do I start?”

Sharon develops a basic plan for Alana to track every dollar she spends over the course of a
month. Alana collects all her receipts in a shoebox and reviews them with Sharon at the end
of the month:

Coffee: 10 lattes @ $4 each

Movies: 3 movies @ 10 each
Food: 4 meals with friends @ $12 each; 20 snacks/energy drinks @$3
each Clothes: 3 trips to the mall with friends @ $30 per trip
Car insurance: Parents make her pay $70/month toward policy in exchange for driving family
car Gas for car: 2 fill-ups @ $35 each
Cell phone: Parents expect her to pay $36/month toward family plan
Shoes: 1 pair @ $60

After completing this process, Alana reacted:

“Wait a second, Sharon! I think my boss is ripping me off! I work 15 hours a week, on
average, at
$11/hour. According to my receipts above, I’m spending much less per month than I’m
earning, but, as we’ve already established, I’ve only got $56 saved up from 3 years of
working. What gives? How do I file a complaint? How do I get my money back? Wait until I
report this boss of mine! I’m putting this on social media!”

Sharon can tell that Alana is angry, but she’s pretty sure her boss isn’t stealing money from
her. Once Sharon lends some clarity on Alana’s pay, she feels slightly better, but she’s still
really worried about her initial problem:

“This is going to be extremely difficult for me to cut anything. I mean, I’m working hard,
and think I deserve to enjoy the money that I earn. To save that $3,000 for college, I
basically need to work an extra 25 hours per month. It’s my senior year of high school! I
need to focus on my grades and apply to college. I am so confused!”

Sharon thinks back to where their conversation started last month and how lost Alana
seemed. She hoped that having Alana prioritize her goals and review her spending would
help her gain some necessary perspective, but Sharon realizes Alana is at a dead-end, so
her next idea is to outline a few options for Alana so she can choose a solution that will work
best for her.

GUIDE QUESTIONS:

1. Alana only has $56.47 saved for college. Brainstorm possible reasons why she has
only managed to save this amount.

REASON 1:
It's possible that Alana's part-time work pays poorly, leaving her with little saved. It
might be difficult for her to save a significant sum of money if she is making the
minimum wage or almost it.

REASON #2:
Alana may be losing money as a result of her spending habits. For instance,
Purchasing $4 worth of coffee every day may rapidly add up, in addition to
Attending movies that cost $10 apiece and eating dinners with friends that cost an
extra $12 may be expensive as well. Moreover, Alana's overall costs are impacted by
her $30 per trip shopping excursions and her $3 per snack and energy drink
purchases. It might be expensive for her to incur all these additional costs on top of
what she truly needs.

REASON #3:
Alana said she's not sure how to manage her finances well. It's simple to overspend
or lose sight of where money is going when you don't have a budget. Furthermore,
the majority of her money may be swiftly depleted by unforeseen costs like auto
repairs and medical expenditures.

REASON #4:
After three years of part-time employment, Alana has only saved $56.47. Maybe she
didn't always put saving first during those years. In addition, she could have lost out
on a lot of chances that would have enabled her to save more money than she had
earned.

2. What do you think Alana’s goals should be?

Alana’s main goal would be to prioritize her studies while maintaining her income from
her part-time job. Despite her current situation, what Alana should focus on as the
main consideration would be finishing her studies for a better opportunity to find in
her later career that would give a higher settlement than working part time or during
the summer.

3. How can Alana get a better understanding of her spending patterns?

To gain a better understanding of her spending patterns, Alana has multiple solutions
to identify where her money is going. Alana could track her expenses within a certain
time period, preferably a month, in order to establish an idea of where she spends her
money the most. This can be done by reviewing receipts collected, bank statements,
 or card transaction history.

Alana may also choose to categorize her expenses into different groups like bills,
subscriptions, food, transportation, and entertainment. This will aid Alana in
understanding her spending patterns and for her to identify where she spends the
most on. It’s also beneficial to compare her actual spending to her budget, if she has
one, to identify any discrepancies.

4. Do some quick math to compare how much Alana should be making per month and
to compare it to how much she’s spending to determine why Alana’s concerned.

By using her average hourly rate and the amount of hours she works each week, we
can first calculate Alana's weekly income, which we then use to compute her monthly
income. Her weekly income is $165, based on her hourly rate of $11 and her 15
working hours per week. Her monthly income is therefore predicted to be roughly
$660 after multiplying her weekly income by the average number of weeks in a
month, which is approximately 4 weeks each month. We then contrast Alana's
monthly income and expenses. $30 for movies, $40 for coffee, $108 for food (four
meals at $12 apiece plus twenty snacks/energy drinks at $3 apiece), $90 for clothes
(from three shopping visits at $30 apiece), $70 for auto insurance, $70 for petrol,
$36 for her phone, and $60 for shoes are just a few of her expenses. Her monthly
expenses come to $504 when we add up all of these costs. It's clear that Alana
needs to be setting up a sizable amount of her monthly salary when comparing her
$504 in costs to her estimated $660 monthly income. But even after working for
three years, Alana notes that she only has $56 saved. This suggests that she may
need to address any disparities in her income or spending, which is why she is
concerned.

5. What 2-3 options would you outline for Alana to help her achieve her goals? Be ready
to discuss with her the pros/cons of working more versus finding other ways to
adjust her budget. Be specific with your recommendations, highlighting specific costs
or income sources. (Bobis)

OPTION 1: Increase work hours

Pros: By working more hours, Alana can increase her income and save more money
for college. This will help her reach her goal of saving $3,000 for her living expenses
on campus.
Cons: Working more hours may impact Alana's ability to focus on her schoolwork and
college applications. It can also lead to burnout and reduce her free time for social
activities and relaxation. Recommendation: Alana could consider working additional
shifts or finding a higher-paying job to increase her income without sacrificing too
much of her time and energy.

OPTION 2: Cut back on expenses

Pros: By cutting back on unnecessary expenses, Alana can free up more money to
put towards her college savings goal. This can help her achieve her goal without
having to work extra hours.
Cons: Cutting back on expenses may require Alana to give up some luxuries or social
activities that she enjoys. It may also be challenging to make significant cuts without
feeling deprived. Recommendation: Alana could review her spending habits and
identify areas where she can reduce costs, such as eating out less often, shopping
for clothes only when necessary, or finding cheaper entertainment options.

OPTION 3: Explore other income sources (tutoring, digital editing, etc.)

Pros: Alana could consider finding additional ways to earn money, such as tutoring,
digital editing, or selling items online. This can help her boost her income without
necessarily increasing her work hours.
Cons: Finding additional income sources may require Alana to invest time and effort
upfront to get established. It may also be challenging to balance multiple income
streams with her other commitments. Recommendation: Alana could explore
different ways to earn extra money that align with her skills and interests, allowing
her to increase her income without overwhelming herself with work.