Homework: Unit 1.1 - Taking Control of Your Finances

1. What does a negative monthly cash flow​ mean?

A. It means your investments are losing value. Each month you lose a percentage of the money that you​ invested, which is the reason for the negative cash flow.

B. It means you are taking in more money than you are spending. When you subtract your total expenses from your total​ income, the difference is negative.

C. It means you are spending more money than you are taking in. When you subtract your total expenses from your total​ income, the difference is negative.

D. It means you are spending more money than you are taking in. When you subtract your total expenses from your total​ income, the difference is positive.

E. It means your investments are losing value. When the interest rates​ decrease, your cash flow becomes negative.

F. It means you are taking in more money than you are spending. When you subtract your total expenses from your total​ income, the difference is positive

2. For the average​ person, what is the single biggest category of​ expense?

A. The single biggest category is entertainment. The average person has not yet considered finding​ lower-cost entertainment options.

B. The single biggest category is housing. The average person uses​ 23% of his or her income on housing.

C. The single biggest category is housing. The average person uses​ 33% of his or her income on housing.

D. The single biggest category is food. The average person uses​ 46%-66% of his or her income on food.

E. The single biggest category is entertainment. The average person spends​ 8% of his or her income on entertainment.

F. The single biggest category is food. The average person uses​ 23%-43% of his or her income on food.

3. Which of the following is necessary if you want to make monthly contributions to​ savings?

A. You must be spending less than​ 20% of your income on food and clothing. As long as you​ don't increase your spending in any other​ category, you should be able to find money to save.

B. You must have a positive monthly cash flow. If your cash flow is​ positive, you will have money left over at the end of each​ month, which you can use for savings.

C. You must not owe money on any loans. This means that you are not spending any money toward interest. If you are not paying​ interest, you have money to save.

D. You must not owe money on any loans. If you do not owe any money on​ loans, you will have money left over at the end of each​ month, which you can use for savings.

E. You must have a positive monthly cash flow. If you have a positive monthly cash​ flow, you can pay more towards your credit card balance. Once the balance is​ zero, you should start putting that extra money in the bank.

F. You must be spending less than​ 20% of your income on food and clothing. Spending less on food and clothing will increase cash flow exponentially every month.

4. My monthly cash flow was — ​$126​, which explained why my credit card debt kept rising.

A. This statement does not make sense because he incorrectly calculated his monthly cash flow.

B. This statement does not make sense because minus ​$126 is not a real dollar amount.

C. This statement makes sense if the credit card balance is $126.

D. This statement makes sense because a cash flow of minus ​$126 means that if he​ doesn't have any money​ saved, then any money he spends must be borrowed from a credit card.

5. My vacation travel cost a total of $1440​, which I entered into my monthly budget as $144 per month.

A. This statement does not make sense because when making a monthly​ budget, expenses such as vacations should only be included for the month in which they are taken.

B. This statement makes sense because when making a monthly budget, a prorated amount for expenses that don't recur monthly, such as vacations, should be included.

C. This statement does not make sense because the value entered into the monthly budget should be $ 120.

D. This statement does not make sense because when making a monthly​ budget, expenses such as vacations should be ignored since they are a small expense compared to other monthly expenses.

6. Brandon discovered that his daily routine of buying a slice of pizza and a soda at lunch was costing him more than ​$16,000 per year.

A. This statement does not make sense because this would mean that a slice of pizza and a soda costs him about $4 a day.

B. This statement does not make sense because this would mean that a slice of pizza and a soda costs him about $44 a day.

C. This statement makes sense because this would mean that a slice of pizza and a soda costs him about $44 a day.

D. This statement makes sense because this would mean that a slice of pizza and a soda costs him about $4 a day.

Note: To determine the daily expense of buying a slice of pizza and a soda at​ lunch, divide the cost for the year by the number of days in a​ year, 365. Then determine whether or not this value is appropriate. ($44 a day for a soda and slice of pizza is unrealistic).

7. Compute the total cost per year of the following pair of expenses. Then answer the question that follows. Suppose you spend $20 every week on coffee and $129 per month on food. Over the course of a​ year, do you spend more on coffee or​ food? Assume that there are 52 weeks in a year.

Written answer: Over the course of a​ year, you spend $1,040 on coffee and $1,548 on food.​ Therefore, you spend more on food.

8. Suppose your cellphone bill is ​$90 per​ month, and you spend $360 per year on student health insurance. Over the course of a​ year, do you spend more on your cellphone or your​ insurance?

Written answer: Over the course of a​ year, you spend $1,080 on your cellphone bill and $360 on student health insurance.​ Therefore, you spend more on your cellphone bill.

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Credit Card Interest (Media 2)

9. Find the monthly interest payment in the situation described below. Assume that the monthly interest rate is 1 divided by 12 of the annual interest rate. You maintain an average balance of $900 on your credit​ card, which carries a 15​% annual interest rate.

Written Answer: The monthly interest payment is $11.25.

10. Find the monthly interest payment in the situation below. Vic bought a new plasma TV for $2200. He made a down payment of $400 and then financed the balance through the store.​ Unfortunately, he was unable to make the first monthly payment and now pays 5% interest per month on the balance​ (while he watches his​ TV).

Written Answer: What is​ Vic's monthly interest​ payment?

​$90

11. For the following​ situation, find the average monthly expense that you would use in budgeting for the given expense.​ Note: Annual means once a​ year, and semiannual means twice a year. During one​ year, Saul takes 15 credit hours for each of three quarters. Tuition and fees amount to ​$605 per​ credit-hour. Textbooks average $310 per quarter.

Written Answer: The average monthly cost for tuition and fees and textbooks is

$2,346.25.

12. The expenses and income of an individual are given in table form to the right. Find the net monthly cash flow​ (it may be negative or​ positive). Assume that amounts shown for salaries and wages are after taxes and that 1 month equals 4 weeks.

Written Answer: The net monthly cash flow is $510.