Home Budget Analysis - Calculator Explanation

Subscribing to my site guarantees you don't miss any new content. Choose either E-Mail Feed or RSS Feed. Thanks for visiting!

I hope you can tell by now that I’ve put a premium on financial calculators that help you get to know yourself better. This last calculator I am going to look at is the most detail oriented, and comprehensive, of any of the savings calculator that we’ve looked at so far.

The Home Budget Analysis calculator can work in conjunction with either of the last two savings calculators we’ve examined and really helps to shed light on one’s financial underbelly.

In fact, many of the 6 calculators that I’ve written about can be integrated quite effortlessly. I’m looking forward to bringing you different scenarios where we get to use 3 or 4 different calculators within the same planning experience. Here we go…

Home Budget Analysis Calculator

Managing your monthly budget can be difficult and frustrating. One of the most important aspects of controlling your budget is to determine where your money is going. This calculator helps you do just that. By entering your income and monthly expenditures, you can see how much you have left to save and where your money is being spent.

In addition, you can click the “view report” button to compare your budget breakdown to pre-set targets, which can help identify areas for improvement. This is a pretty cool feature because it gives people something to measure up against and try and improve upon. Lets look at a screenshot of the different fields…

Monthly Expenses

I think this field is pretty self explanatory. By opening up the expenses calculator you are able to itemize all of your monthly expenses. Here’s a look at the monthly expenses I used for this example…

It’s important when inputting all your expenses to include absolutely everything. If something doesn’t fit into a category be sure to list it under ‘other expenses’ and keep track of it separately. For some of you, after you complete this step, you may begin to feel a sense of relief and hope. For some of you, this is the first step in regaining control of your financial independence.

Remember how I’m always talking about the psychological effects of financial planning? Well, these calculators will begin to simmer that emotional stew and empower the end user.

Net Monthly Pay

Below is a screenshot of all the wage information I entered for this case. Some of these fields may be a bit confusing, so lets examine a few of the more problematic ones. For all the withholding fields, you should be able to get that information off your pay-stub or by looking on your W2 from last year. You can find your W2 on the front page of your US tax return, which lists federal, state and local taxes withheld for the year. This will give you a good idea about what to enter in the ‘withholding’ fields.

Your FICA is a US payroll tax imposed by the federal government on employers and employees to fund Social Security and Medicare. For 2007, the employee’s share of the Social Security portion of the tax is 6.2% of gross compensation up to a limit of $97,500 of pay. The employee’s share of the Medicare portion is 1.45% of wages with no pay limit.

Both FICA and Medicare are withheld from an employee’s pay; this information is also available on your W2. For the purposes of our example, we earned $69,600 gross income, (which is below the $97,500 threshold) of which 6.2% was withheld for FICA.

Divide that number by 12 and you’ve got a monthly FICA entry. Finding your medicare withholding is done by performing the same equation using 1.45%. (And oops, in the below screenshot, I was off by $30 or so on FICA and $14 on Medicare, lets not tell anyone.)

If you’re self-employed, your FICA and Social Security numbers are different. You are the employer and employee, so your responsible for 15.3% in tax. To learn more, click here.

Miscellaneous Income

In our case, we have $200 in monthly income generated on the side from teaching tennis lessons. This additional $2,400 in yearly income, combined with $67,200 in gross wages, takes us to our annual gross income of $69,600.

In Conclusion

After all is said in done, it’s good to see that our monthly net income exceeds our overall expenses. You really don’t want it to be the other way around. The long term goal here is to trim the fat off the expenses and increase the amount we can put towards savings and investments.

In our case, we have $613 available each month for savings. That works kind of well with the numbers we’ve used in the previous calculator examples. What can we do with our monthly savings? Well, let’s stay in the same vein we’ve been using throughout these last 6 posts.

First, we can set aside $200 each month into a risk averse savings account, T-bills, CD’s etc. for the purposes of paying Roth conversion taxes in 2011 and 2012. Secondly, open up a Roth IRA and make a $330 monthly contribution, which would (roughly) bring us to the $4,000 maximum contribution for 2007.

That leaves us with just under $90 to enjoy. Emergency fund anyone? I’ll leave that for you to decide what to do with.

Tags: 'Down Home' Financial Calculators, Featured, financial calculators, Savings Calculators