MT421 Unit 2 Personal Budget Analysis Example

Eighty-Eight Dollars Short: An MT421 Unit 2 Personal Budget Analysis for a Knoxville Renter

[Student Name]

Purdue University Global

MT421: Financial Planning

Unit 2 Personal Budget Analysis

[Instructor Name]

[Date]

Kayla Brooks and her figures are a composite; tax and payroll rules are from the cited 2025 sources, and the other sources cited are real.

From Gross Pay to Take-Home

Kayla earns a salary of $58,400 a year as an accounts coordinator, or $4,866.67 a month before deductions. Four deductions come out before her paycheck reaches her checking account. Her 401(k) contribution is 4 percent of pay, $194.67 a month. Her share of the employer health plan is $128 a month, taken before tax under the plan's premium arrangement. Social Security and Medicare taxes are 7.65 percent of wages after the health premium, about $362.51, because 401(k) deferrals remain subject to those payroll taxes while the premium does not (Internal Revenue Service, 2025). Federal income tax withholding is $367.90 a month. Tennessee has no tax on wages, so there is no state line. Take-home pay is therefore $3,813.59 a month, which matches the deposit on her last three bank statements to the cent.

Rebuilding take-home from gross matters because every later figure depends on it, and because it shows where Kayla is already saving. The 401(k) deduction is the only saving in the household at present, and it would be invisible in a budget that began from the deposit.

How the Spending Was Measured

Each category is the average of three months of statements, July through September, from her checking account, her Visa and the furniture store card. Hilgert et al. (2003) found that households who track spending from records tend to manage money better than those who rely on general impressions, and the method follows that finding: no figure in the table was estimated. Cash withdrawals were traced to their use where Kayla could remember it and filed under household items where she could not.

Three Bands and the Rule Behind Them

The bands follow one rule. A cost is fixed if it is owed by contract or law whether Kayla uses the thing or not and cannot be changed within a month. A cost is variable if it is necessary but its amount moves with use. A cost is optional if she could stop it next month without breaking a contract or going without a necessity.

Fixed costs total $2,309 a month. Rent is $1,195. Minimum payments on five debts total $845. Car insurance is $138, the phone plan $62, internet $52 and renters insurance $17. The phone sits in fixed because her two-year plan cannot be ended early without a fee, even though its usage varies.

Variable costs total $735: groceries at $360, electricity and water at $145, fuel at $160 and household items at $70.

Optional costs total $858. Dining out and delivery lead at $385. Entertainment is $140, clothing $120, gifts $80, personal care $70 and streaming services $63.

Total spending is $3,902 a month against take-home of $3,813.59, a shortfall of $88.41.

The budget was not balanced; the gap was being borrowed, $88 at a time, on a card charging 26.24 percent.

Where the Shortfall Went

A shortfall that never shows up as an overdraft has to be financed somewhere, and Kayla's statements show where. Her Visa balance rose by about $260 over the three months even though she paid more than the minimum each month. The budget gap was being carried on the card at 26.24 percent, which is why the Visa balance has not fallen in a year of payments.

Measured Against a Guideline

A bar chart sets each band against the 50/30/20 guideline Warren and Tyagi (2005) proposed for after-tax income, where needs take half, wants three tenths and savings and extra debt payments the remaining fifth. Kayla's needs, fixed plus variable costs including debt minimums, take $3,044, or 80 percent of take-home. Wants take 22.5 percent. Savings and extra debt payment take nothing; the line is negative. The comparison does not mean her rent is extravagant. Rent alone is 31 percent of take-home, close to common guidance. The needs share is high mainly because $845 of debt minimums sit inside it, and that points the analysis toward the debt plan rather than toward a cheaper apartment.

The Revised Budget

The revision cuts only optional costs, because fixed costs cannot change within a month and variable costs are already modest for one person. Dining and delivery fall from $385 to $200, a cut of $185 that still allows two meals out each week. Entertainment falls by $50 to $90, clothing by $50 to $70, streaming by $33 to $30 after dropping two of four services, and gifts by $20 to $60. Together the cuts total $338, bringing total spending to $3,564 and leaving a surplus of $249.59 a month.

The cuts were tested against Kayla's own statements rather than chosen as round numbers. In August she spent $205 on dining out, so $200 is a month she has already lived, not a hope.

Where the Surplus Goes

The surplus is earmarked for debt, first to stop the Visa from growing and then to pay balances down. Its exact use waits for the repayment plan in Unit 5, which will decide whether the extra $250 goes to the highest rate or the smallest balance. Until that plan is written, the surplus moves to the Visa on payday, so it cannot be absorbed by spending.

References

Hilgert, M. A., Hogarth, J. M., & Beverly, S. G. (2003). Household financial management: The connection between knowledge and behavior. Federal Reserve Bulletin, 89(7), 309-322.

Internal Revenue Service. (2025). Employer's tax guide (Publication 15). https://www.irs.gov/publications/p15

Warren, E., & Tyagi, A. W. (2005). All your worth: The ultimate lifetime money plan. Free Press.