Question

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?

Answer 1

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**.