Question

Scenario:

Carl has just received his weekly check from his after-school job. In his budget, he did not plan for withholdings. Now that he has received his check, he has been reminded that taxes will be withheld. He realizes that he needs to return to his budget and make some changes.

Based on this information, which is the first change should Carl make to his monthly budget?

a greater gross income
a greater amount for discretionary spending
a lower net income
a decrease in the number of fixed expenses

Answer 1

A lower net income.

Reason: withholdings reduce Carl’s take-home pay, so the first thing to change in the budget is the net income amount. After that he can adjust spending categories (discretionary or fixed) to match the new net.