Ask a New Question
Menu

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.

1 answer

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 รท 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