Personal Finance Case Study

This assignment presents a case study involving personal finance concepts. Part A analyzes Allison's monthly cash flow, determining her net cash flow after expenses. Part B examines Judy's budget deficit and explores solutions, including credit card use, its impact on the income statement and balanc...Read More

Part A – 1:
From Allison’s after-tax cash flows, she has to meet the expenses as provided. Cash
flows remaining after meeting the various expenses will be the net cash flow for the month.
Particulars Amount ($) Amount ($)
Cash Inflow after taxes 3000
Less: Cash Outflows attributable to the monthly expenses:
1. Rent 750
2. Student loan payment 200
3. Utilities 150
4. Food 300
5. Recreation 600
6. Car expenses 200
7. Clothing 150
Total Cash Outflows (2350)
Net Cash Flow for the month 650
Part A – 2:
Judy has a $1,000 deficit given that her cash outflows ($4,000) exceed her cash
inflows ($3,000). To meet the shortfall, she could either use a credit card or borrow the
necessary amount. This would lead to an increase in her liabilities. Alternatively, she could
do extra work to make more money, which would increase her assets (i.e. cash). Besides, she
could even liquidate any investment to raise cash, in which case here investment assets would
decrease and her liquid assets would increase, both by the same amounts, thereby having on
overall impact on the total assets.

Part B – 1:
Credit card may affect the personal budget in terms of added interest expenses on the
due amount if the due amount were to be not paid by the due date. Besides, if not controlled,
expenses done by charging to the credit card may increase enormously and may defeat the
purpose of having a personal budget.
Part B – 2:
Any interest expense attributable to non-payment of credit card dues by the due date
will increase an item of expense on the income statement.
Part B – 3:
Credit cards may facilitate purchases of more assets but when all the expenses
incurred on such purchases are charged to the credit card, there will be a hike in liabilities as
well. Thus, one’s balance sheet may see an increase in not just assets but also liabilities.

Part C:
Two advantages of selling the home without hiring a realtor are: (1) Not having to pay
any fees for the realtor’s services and (2) Securing our own interest instead of letting the
realtor serve their interests at the expense of our own interest.
Two disadvantages of selling the home without hiring a realtor are: (1) Not having a
readily available listing of potential home buyers and (2) Not always possessing the skills to
convert potential home buyers into actual buyers.