Lauryn's wages were not as much as she had budgeted. How can her budget be modified so there will be a positive actual net income?
| Monthly Budget | Budgeted Amount | Actual Amount |
| :------------- | :-------------: | :------------ |
| Income Wages | $1050 | $775 |
| Expenses | | |
| Car - gas, insurance | $250 | $ |
| | $150 | $ |
| Food | $120 | $ |
| Clothes | $300 | $ |
| College Savings| $75 | $ |
| Recreation | $25 | |
| Net Income | $130 | $ |
Answer (2)
Calculate total budgeted expenses: $250 + 150 + 120 + 300 + 75 + 25 = $920.
Determine the required expense reduction: 145"> x > 145 .
Create a modified budget with reduced expenses: Clothes (reduced by $150), Food (reduced by $20), College Savings (reduced by $25), Recreation (reduced by $5).
Verify positive net income with the modified budget: $775 - 720 = $5.
The budget can be modified to achieve a positive actual net income of 5 .
Explanation
Understanding the Problem Lauryn's actual wages($775) were less than her budgeted wages($1050). This means she needs to adjust her expenses to ensure she has a positive net income. Let's analyze her current budget to see where she can make changes.
Calculating Total Budgeted Expenses First, let's calculate Lauryn's total budgeted expenses. We add up all her expenses: 250 + 150 + 120 + 300 + 75 + 25 = 920 So, her total budgeted expenses are $920.
Calculating Budgeted Net Income Now, let's calculate her budgeted net income, which is her budgeted income minus her total budgeted expenses: 1050 − 920 = 130 Her budgeted net income is $130.
Calculating Actual Net Income (Unmodified) Next, let's calculate her actual net income if she doesn't change her spending habits. This is her actual income minus her total budgeted expenses: 775 − 920 = − 145 Her actual net income is -$145, which means she has a deficit.
Determining Required Expense Reduction To find out how much Lauryn needs to reduce her expenses to have a positive net income, we need to determine the amount of expense reduction required. Let x be the amount by which she reduces her expenses. We want her actual income minus her new total expenses to be greater than zero: 0"> 775 − ( 920 − x ) > 0 0"> 775 − 920 + x > 0 0"> − 145 + x > 0 145"> x > 145 This means Lauryn needs to reduce her expenses by more than $145 to have a positive net income.
Identifying Potential Areas for Expense Reduction Now, let's look at where Lauryn can cut back on her expenses. Some possible areas for reduction include:
Clothes: This is a large discretionary expense.
Recreation: This is another area where cuts can be made.
Food: It might be possible to reduce this expense by eating out less or buying cheaper groceries.
Car: While gas and insurance are necessary, she might be able to save by driving less or finding cheaper insurance.
College Savings: While important, this could be temporarily reduced if necessary.
Creating a Modified Budget Let's create a modified budget where Lauryn reduces her spending to achieve a positive net income. Here's one possible scenario:
Car: $250 (No change)
Missing Expense: $150 (No change)
Food: Reduced to $100 (Reduction of $20)
Clothes: Reduced to $150 (Reduction of $150)
College Savings: Reduced to $50 (Reduction of $25)
Recreation: Reduced to $20 (Reduction of $5)
Total Expenses: 250 + 150 + 100 + 150 + 50 + 20 = 720
Actual Net Income: 775 − 720 = 5
Verifying Positive Net Income With this modified budget, Lauryn's actual net income is $5, which is positive. She achieved this by making significant cuts to her clothing expenses and smaller reductions in food, college savings, and recreation.
Final Answer and Conclusion Lauryn can modify her budget by reducing her expenses in categories like clothes, food, college savings, and recreation. By cutting her expenses by a total of more than $145, she can achieve a positive actual net income. In the example provided, she reduced her expenses to $720, resulting in a net income of $5.
Examples
Budgeting and expense tracking are essential skills for managing personal finances. This problem demonstrates how to adjust a budget when income is less than expected. For example, if you are planning a trip and the cost of flights increases, you might need to reduce your spending on accommodation or activities to stay within your budget. Understanding how to prioritize expenses and make necessary adjustments ensures financial stability and helps achieve financial goals.
To achieve a positive actual net income, Lauryn should reduce her total expenses by more than $145. By adjusting categories such as clothing, food, and recreation, she can bring her total expenses down to $720, resulting in a positive net income of $55. Careful expense management will help her balance her budget effectively.
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