Mathematics for Business and Personal Finance

Chapter 3: Recordkeeping

Business Math in Action

Budgeting for Living on Your Own

A major milestone of adulthood is finding your own housing. That means saving enough money to move, and knowing how to spend wisely once you are in your own place. You will have more success in these areas if you learn to use a budget. Start by gathering the following materials:

1. Pen and paper
2. Calculator
3. Paycheck stub
4. Bills and receipts for at least two months. Include credit cards, cell phone, health insurance, student loans, anything you will be paying for when you are on your own.
5. A record of how much cash you spend in a month. Collect ATM receipts and bank statements to make sure.

Use two sheets of paper. One should be headed Fixed Expenses, the other, Variable Expenses. On the Fixed Expenses sheet, list bills you pay every month, such as student loans, car payments, insurance premiums, Internet access, cable TV, and phone.

On the Variable Expenses sheet, list everything else. The reason you need to collect two or more months' worth of receipts is that some expenses, such as haircuts, may not happen every month. Instead of leaving these out of your budget, average them into your monthly expenses. Use the following general categories:

Clothing
Transportation
Health care
Entertainment
Education
Reading materials, personal care, cash contributions, and other expenses

Total the expenses in each category, and divide by the number of months you used. The result is your average monthly Fixed and Variable Expenses. Deduct both sums from your monthly income to find out how much you have left over to get into your own place and eventually pay rent. Experts suggest that you save at least three months' rent before moving in. You will need one as a security deposit and another in case of emergencies.

Of course, rent is not the only new expense you will have. You will probably be paying for utilities, as well as groceries, household cleaning items, and other, unexpected things. How can you make an accurate guess as to what this will cost? Financial experts have guidelines about what people should spend—for example, 30 percent on housing, 8 percent on clothing, 9 percent on entertainment. A more realistic approach might be to look at what people under the age of 25 actually do spend.

Percent of Expenditures for People Under 25

(From the National Center for Education Statistics)

Compute how your own net earnings (your take-home pay) would translate to the percentages above. Round the numbers to give yourself a ballpark figure. For instance, allow 16 percent for food, 32 percent for housing, and so forth. Although the cost of rent and transportation may vary from city to city, the figures you come up with will give you a general idea of how well your current salary would support you. You will also see how you will need to change your spending habits in order to achieve your goal. Track those changes over the coming months. Your budget, and is one of the most powerful tools you will ever learn to master.

English Language Arts/Writing

Housemates

Many young adults save money by finding another person to live with and split the cost of rent. For example, a one-bedroom apartment might cost $600, but a two-bedroom apartment costs $900–you can split the rent with a roommate and save at least $150 per month (you would also split the cost of utilities and supplies). Write a paragraph explaining why you would or would not find living alone worth the extra expense.