Instructions You will now create a monthly budget based on the median annual per

Instructions
You will now create a monthly budget based on the median annual personal income earned in the United States for the year 2019, which was $35,977.00. Assume that you get paid equal amounts on the first and fifteenth day of each month (bi-monthly salary).
Calculate expenses for your budget in the following categories: mortgage, transportation, other fixed expenses, variable expenses, and future expenses. Use the information below and/or from websites for each item to come up with a realistic estimate of costs. For example, you will use car-buying websites to determine a car to purchase to create your budget and an auto loan calculator to determine a monthly payment to put in the budget. Be sure to follow the instructions for down payments and types of loans. Make honest decisions about how much you can actually afford with your salary. Your expenses should not be more than your take-home pay. You may use the Unit 3 Assignment: Expense Budget template (66KB, opens in a new window).
Mortgage
As a young person working for a few years, you have decided to buy a home. Your credit score is 640, a typical acceptable credit score for someone without a long credit history but a good record of paying bills on time. The most common option for home loans in this situation is the government-backed FHA loan. The payment you make each month toward that loan is called a mortgage. Most people have to work and save money for several years before building the credit score and savings to pay a 20% down payment and qualify for conventional mortgage loans with the best interest rates.
While the government-backed FHA loan program can loan money to individuals with credit scores below 580, you will find that it is far more common for lenders to require a higher credit score. However, 640 is still a good starting point.
You are getting a first-time homebuyer’s loan. Assume that you are getting an FHA loan with a 5% down payment for a term of 30 years with a 3.5% interest rate. The seller will pay $3,000 of your closing costs. FHA loans will require mortgage insurance in addition to the monthly payments of principal and interest. Assume a private mortgage insurance (PMI) premium of 1.75% of the loan amount, spread out over 360 (30 years) of payments. This is different from homeowner’s insurance.
With all the above information in mind, research homes on one of the following websites, or find a similar website to pick out a home. When picking out a home, consider if there are additional fees such as a homeowner’s association or HOA (including a monthly or yearly fee.) Most real estate listings will include this information. Assume that the real estate market is a “seller’s market” and that you must pay the asking price for the property. Property taxes should also be figured into your monthly payment. Assume a property tax rate of $500 for each $100,000 of the home price. For example, a $200,000 house would have an annual property tax of $1,000. This property tax is often held in “escrow” by the mortgage company to be paid each year. In an escrow agreement, a third party holds funds to be used for a specific purpose (in this case, paying property taxes.)
Zillow (opens in a new window)
Trulia (opens in a new window)
Realtor.com (opens in a new window)
HomeFinder (opens in a new window)
Use a mortgage calculator (opens in a new window) like this one or similar to figure out your monthly housing payment. Remember that your monthly payment will include your principal and interest, mortgage insurance, and homeowner’s insurance. Use $65/month as a standard payment for homeowner’s insurance ($780/year). Add your monthly housing payment to your calculations.
Transportation
You must obtain a car loan to buy a vehicle of your choice. Assume you have a $2,000 down payment with no trade-in vehicle, a 6% interest rate, and a term of 60 months (5 years). Use a car payment calculator (opens in a new window) to determine your monthly payment. Remember, you earn $35,977 a year. Select a vehicle that you can afford from any of the websites listed below or similar websites.
Cars.com (opens in a new window)
Autotrader (opens in a new window)
Carmax (opens in a new window)
Carvana (opens in a new window)
Also, include the monthly cost of:
South Carolina vehicle tax: This example from Richland county (opens in a new window) is broken down by months. You will actually pay an annual property tax bill. The monthly amounts allow you to budget for it.
Automobile insurance: WalletHub (opens in a new window) shows the average annual auto insurance rate for someone 25 years old.
Gas allowance for commuting to work (10-mile round trip) and other places you need to go to. Look at the current gas prices (opens in a new window) and estimate how many miles you’ll drive each month to calculate the monthly allowance. A reasonable amount maybe $100.
Other Fixed Expenses
These expenses are usually the same amount each month. Here are the average numbers to enter into your calculations. You may adjust these numbers to fit your situation.
Student Loan: $115
Credit Card: $125
Electricity: $200
Out-of-pocket medical expenses: $45
Water and sewer: $50
Trash: $15
Internet: $40
Variable Expenses
The amount paid for these expenses may change each month. Do some research at your favorite companies to get an estimate.
Cell Phone: Research and find a plan. Total the costs of the plan, taxes, phone purchase, etc., and enter the monthly payment.
Groceries: Shop for a week’s worth of groceries at your favorite grocery store website. How much will you spend on groceries each month (multiply by 4)?
Entertainment: How much do you spend on music, going out to eat, going to concerts, etc.? Assume that you eat out at least once per week, and you go to at least one major event (a concert, the movies, a play, etc.) a month.
Clothing: Use your favorite clothing brands’ websites to determine a reasonable monthly clothes budget. Assume that you must purchase a minimum of one new outfit a month.
Future Expenses
Choose at least one of the following to save for each month.
Vehicle maintenance (for example, oil changes, new tires, regular check-ups, repairs, etc.)
Home repair (ex. replace appliances, service heating/cooling system, plumbing, etc.)
Vacation or a trip out of town
Children (having children and child care, look at the expenses of daycare for preschool children)
Questions to Answer
After completing the monthly budget, how much money do you have left (salary minus expenses)?
Identify and explain at least one insight you gained about budget and income. Use full sentences and explain your insight in approximately one paragraph.
How do you think additional savings should be added to your budget? How difficult (explain why) would it be to save 5 – 10% of your monthly take-home pay? (Think about upcoming costs that you might have to pay or things you may want to do.) Identify some areas that you should consider saving up for and some ways that you could cut costs in your budget to allow increasing your savings.