Use the sample monthly budget below to answer the questions.
Using the information above in the sample budget, analyze the monthly spending and saving habits shown. In your answer you must include the following with your analysis:
(1) Do you see any potential variable expenses that could change the budget each month? If so, what are they? If not, why do you think this?
(2) With the leftover spending money each month, should this individual consider investing? If so, which investment option would be the best and why? If not, why do you think this?
(3) Consider the amount going to savings, what type of interest would provide the greatest benefit and why? How long would it take to earn $5.00 in interest if the rate is 1% monthly? Provide calculations to support your answer.
REMINDER - Absolutely no outside resources are allowed to be used on tests. This includes but is not limited to the use of of lessons, notes, internet resources, and artificial intelligence. To do so is a violation of the honor code and will be reported.
(10 points)
0 / 10000 Word Limit
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1) The potential variable expenses that could change the budget each month include groceries, utilities, and entertainment. These expenses are subject to fluctuation based on factors such as grocery prices, energy usage, and social plans. It's important for the individual to adjust their budget accordingly based on these variable expenses to ensure they stay within their financial means each month.
2) With leftover spending money each month, investing is a good option to consider. One of the best investment options for this individual would be a low-cost index fund. Index funds offer diversification, low fees, and historically solid returns over time. By investing in an index fund, the individual can potentially grow their wealth over the long term while benefiting from compounded returns.
3) To maximize the benefits of savings, the individual should consider a high-yield savings account that offers a competitive interest rate. A high-yield savings account typically offers a higher interest rate than a traditional savings account, allowing the individual to earn more on their savings over time.
To calculate how long it would take to earn $5.00 in interest if the rate is 1% monthly, we can use the formula:
Interest = Principal x Rate x Time
Let's assume the individual has $100 in savings.
$5.00 = $100 x 0.01 x Time
$5.00 = $1 x Time
$5.00 = Time
It would take 5 months for the individual to earn $5.00 in interest with a 1% monthly interest rate.