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Round any decimals to the nearest penny. You are paid $13.70/hr. You work 40 hours per week. Your deductions are FICA 7.65%,

fed tax 11.55%, state 8.35%. Your housing and fixed expenses are 30% of your realized income per month and you want to save 6
months worth in an emergency fund. How much do you need to save?

1 answer

To determine how much you need to save for an emergency fund based on your income and expenses, we can follow these steps:

  1. Calculate Weekly Earnings: \[ \text{Weekly Earnings} = \text{Hourly Rate} \times \text{Hours Worked} \] \[ \text{Weekly Earnings} = 13.70 \times 40 = 548.00 \]

  2. Calculate Monthly Earnings: \[ \text{Monthly Earnings} = \text{Weekly Earnings} \times 4.33 \text{ (average weeks per month)} \] \[ \text{Monthly Earnings} = 548.00 \times 4.33 \approx 2375.64 \]

  3. Calculate Total Deductions: The total deductions percentage is the sum of FICA, federal tax, and state tax: \[ \text{Total Deductions} = 7.65% + 11.55% + 8.35% = 27.55% \]

  4. Calculate Realized Income: \[ \text{Realized Income} = \text{Monthly Earnings} \times (1 - \text{Total Deductions Percentage}) \] \[ \text{Realized Income} = 2375.64 \times (1 - 0.2755) \approx 2375.64 \times 0.7245 \approx 1714.21 \]

  5. Calculate Monthly Housing and Fixed Expenses: \[ \text{Housing and Fixed Expenses} = \text{Realized Income} \times 30% \] \[ \text{Housing and Fixed Expenses} = 1714.21 \times 0.30 \approx 514.26 \]

  6. Calculate Emergency Fund Savings: To save for 6 months’ worth of expenses: \[ \text{Emergency Fund} = \text{Housing and Fixed Expenses} \times 6 \] \[ \text{Emergency Fund} = 514.26 \times 6 \approx 3085.56 \]

  7. Final Amount to Save (rounded to the nearest penny): \[ \text{Emergency Fund} \approx 3085.56 \]

Thus, the amount you need to save for your emergency fund is $3085.56.