Tristan has found a good job as a bookkeeping clerk after finishing his associates degree at the local community college. He is making a beginning annual salary of $19,760. How can this increased income affect his financial decisions? Compare his previous budget when he worked part time while finishing his degree with his current budget with a full time job.
| Monthly Budget | Previous Budget |
|---|---|
| Income |
| Wages | $786 |
| Expenses |
| Rent | $300 |
| Utilities | $60 |
| Groceries | $130 |
| Savings | $120 |
| Car Expenses | $150 |
| Entertainment | $20 |
| Net Income | $6 |
a. Tristan is spending too much money on groceries and entertainment.
b. Tristan is earning quite a bit more in his full time job. He is spending more on rent, utilities, food,
Answer (2)
Calculate Tristan's new monthly income: 12 $19 , 760 = $1646.67 .
Estimate Tristan's new monthly expenses: Rent ($500), Utilities ($80), Groceries ($200), Savings ($300), Car Expenses ($150), Entertainment ($100).
Calculate Tristan's total new expenses: $500 + $80 + $200 + $300 + $150 + $100 = $1330.
Calculate Tristan's new net monthly income: $1646.67 - $1330 = $316.67. Therefore, the answer is b.
Explanation
Analyzing Previous Budget First, let's analyze Tristan's previous budget. His monthly income was $786, and his expenses were: Rent ($300), Utilities ($60), Groceries ($130), Savings ($120), Car Expenses ($150), and Entertainment ($20). His net income was $6.
Calculating New Monthly Income Next, we need to calculate Tristan's new monthly income based on his annual salary of $19,760. To do this, we divide his annual salary by 12: 12 19760 = 1646.67 So, Tristan's new monthly income is approximately $1646.67.
Estimating New Expenses Now, let's consider how Tristan's expenses might change with his increased income. It's reasonable to assume he might spend more on rent, utilities, groceries, entertainment, and savings. Let's create a possible new budget:
Rent: $500 (increased due to potentially better living situation)
Utilities: $80 (increased due to larger apartment/house)
Groceries: $200 (increased due to better quality food)
Savings: $300 (increased significantly due to higher income)
Car Expenses: $150 (assuming this remains constant)
Entertainment: $100 (increased for more leisure activities)
Calculating Total New Expenses Let's calculate Tristan's total new expenses: $500 + $80 + $200 + $300 + $150 + $100 = $1330
Calculating New Net Income Now, we calculate Tristan's new net monthly income by subtracting his total new expenses from his new monthly income: $1646.67 − $1330 = $316.67 So, Tristan's new net income is approximately $316.67.
Comparing Budgets and Analyzing Financial Impact Comparing Tristan's previous budget with his current budget, we can see a significant increase in both income and expenses. His net income has also increased substantially, giving him more financial flexibility. This increased income can positively affect his financial decisions, allowing him to save more, pay off debt, or invest. However, it's important to manage the increased spending in categories like groceries and entertainment to ensure overall financial health.
Final Answer Based on the analysis, Tristan is earning quite a bit more in his full-time job and is likely spending more on rent, utilities, food, and entertainment. Therefore, option b is more accurate.
Examples
Budgeting is a crucial skill in personal finance. For instance, if Tristan wants to buy a car worth $5000, he can use his increased savings to plan how many months it will take to save enough money. If he saves $300 per month, it will take him approximately 300 5000 ≈ 16.67 months, or about 17 months, to save enough money for the car. This kind of planning helps him achieve his financial goals.
Tristan's increased income of approximately $1,646.67 per month allows him to enhance his budget significantly compared to his previous income of $786. His new expenses total $1,330, leading to a net income of about $316.67 each month, providing him greater financial flexibility. Therefore, option b is correct: he is earning more and spending more in various categories.
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