Question

You earn 17.50 /hour and work 40/hours per week. Your Deductions are FICA 7.65%, Federal Tax 12.3% and state tax 6.2%
Housing and Fixed expenses are 30% of your realized income per month. You want to save 5 months worth in an emergency fund within a year (12 months)
How much do you need to save per month to fund the emergency fund and how much discretionary money remains per month.

Answer 1

To calculate how much you need to save per month for your emergency fund and how much discretionary money remains, let's break it down step by step.

### Step 1: Calculate Monthly Income

1. **Hourly Wage**: $17.50
2. **Hours Worked per Week**: 40 hours
3. **Weeks Worked per Month**: Approximately 4.33 weeks (52 weeks/year ÷ 12 months/year)

Now calculate the monthly income before taxes:

\[
\text{Monthly Income} = \text{Hourly Wage} \times \text{Hours Worked per Week} \times \text{Weeks Worked per Month}
\]
\[
\text{Monthly Income} = 17.50 \times 40 \times 4.33 \approx 3,033.33
\]

### Step 2: Calculate Tax Deductions

Next, calculate the total tax deductions.

1. **FICA**: 7.65%
2. **Federal Tax**: 12.3%
3. **State Tax**: 6.2%

**Total Tax Rate:**
\[
\text{Total Deduction Rate} = 7.65\% + 12.3\% + 6.2\% = 26.15\%
\]

Now calculate the total deductions:

\[
\text{Total Deductions} = \text{Monthly Income} \times \text{Total Deduction Rate}
\]
\[
\text{Total Deductions} = 3,033.33 \times 0.2615 \approx 792.04
\]

Now calculate the realized income after deductions:

\[
\text{Realized Income} = \text{Monthly Income} - \text{Total Deductions}
\]
\[
\text{Realized Income} = 3,033.33 - 792.04 \approx 2,241.29
\]

### Step 3: Calculate Housing and Fixed Expenses

Now calculate the housing and fixed expenses:

\[
\text{Housing and Fixed Expenses} = 30\% \times \text{Realized Income}
\]
\[
\text{Housing and Fixed Expenses} = 0.30 \times 2,241.29 \approx 672.39
\]

### Step 4: Calculate Monthly Savings for Emergency Fund

You want to save 5 months' worth of expenses in an emergency fund within a year.

Calculate the total amount to save:

\[
\text{Amount for Emergency Fund} = \text{Housing and Fixed Expenses} \times 5
\]
\[
\text{Amount for Emergency Fund} = 672.39 \times 5 \approx 3,361.95
\]

Now calculate the monthly savings required to fund the emergency fund in 12 months:

\[
\text{Monthly Savings for Emergency Fund} = \frac{\text{Amount for Emergency Fund}}{12}
\]
\[
\text{Monthly Savings for Emergency Fund} \approx \frac{3,361.95}{12} \approx 280.16
\]

### Step 5: Calculate Discretionary Money Left per Month

Now calculate the discretionary money remaining after housing expenses and emergency savings:

\[
\text{Discretionary Money} = \text{Realized Income} - \text{Housing and Fixed Expenses} - \text{Monthly Savings for Emergency Fund}
\]
\[
\text{Discretionary Money} = 2,241.29 - 672.39 - 280.16 \approx 1,288.74
\]

### Final Summary

- **Monthly Savings for Emergency Fund**: **$280.16**
- **Discretionary Money Remaining per Month**: **$1,288.74**