Question

You are paid $12.75/hr. You work 40 hr/wk and your deductions are FICA 7.65, fed tax 10.34% and state tax 6.78%.
Your housing and fixed expenses are 25% of your realized income and you want to save 5 months worth in an emergency fund.
How much do you need to save

Answer 1

To determine how much you need to save for an emergency fund, let's go through the calculations step by step:

### 1. **Calculate Weekly Income:**
Hourly wage = $12.75
Hours worked per week = 40

\[
\text{Weekly Income} = \text{Hourly wage} \times \text{Hours worked}
\]
\[
\text{Weekly Income} = 12.75 \times 40 = 510
\]

### 2. **Calculate Annual Income:**
Assuming you work all 52 weeks in a year:
\[
\text{Annual Income} = \text{Weekly Income} \times 52
\]
\[
\text{Annual Income} = 510 \times 52 = 26,520
\]

### 3. **Calculate Deductions:**
- **FICA:** 7.65%
- **Federal Tax:** 10.34%
- **State Tax:** 6.78%

**Total Tax Rate:**
\[
\text{Total Tax Rate} = 7.65 + 10.34 + 6.78 = 24.77\%
\]

Now calculate the total deductions:
\[
\text{Deductions} = \text{Annual Income} \times \text{Total Tax Rate}
\]
\[
\text{Deductions} = 26,520 \times 0.2477 \approx 6,573.624
\]

### 4. **Calculate Realized Income:**
\[
\text{Realized Income} = \text{Annual Income} - \text{Deductions}
\]
\[
\text{Realized Income} = 26,520 - 6,573.624 \approx 19,946.376
\]

### 5. **Calculate Fixed Expenses:**
Fixed expenses are 25% of your realized income:
\[
\text{Fixed Expenses} = \text{Realized Income} \times 0.25
\]
\[
\text{Fixed Expenses} = 19,946.376 \times 0.25 \approx 4,986.594
\]

### 6. **Calculate Emergency Fund Savings:**
You want to save 5 months' worth of fixed expenses:
\[
\text{Emergency Fund} = \text{Fixed Expenses} \times 5
\]
\[
\text{Emergency Fund} = 4,986.594 \times 5 \approx 24,932.97
\]

### Final Results:
You need to save approximately **$24,932.97** for your emergency fund.