Personal Finance and Budgeting Analysis Assignment

This assignment solution provides a detailed analysis of personal finance concepts, including cash flow management, budgeting, and the impact of credit cards. Part A examines the net cash flow for an individual, Allison, after accounting for various expenses, and contrasts it with Judy's financial deficit and potential solutions like using credit cards or borrowing. Part B delves into the effects of credit cards on personal budgets, highlighting the potential for added interest expenses and the importance of controlled spending. It also explores how credit card usage impacts the income statement and balance sheet. Finally, Part C discusses the advantages and disadvantages of selling a home without a realtor, providing insights into cost savings and potential challenges in finding buyers and marketing the property effectively. This assignment helps students understand the significance of financial planning and the implications of various financial decisions.

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
Thus, Allison’s net cash flows for the month, after meeting her monthly expenses from her
after-tax cash inflows, come to $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. For instance, if she were to use a
credit card for her payments, the credit card company would pay on her behalf to the

merchant / seller / supplier at the time of the transaction but eventually Judy would owe that
amount to the credit card company when the amount as reflecting in the credit card statement
is due for payment. Or, if Judy were to borrow the amount to meet her expenses from
someone, that person would eventually require repayment of the borrowed amount. Thus,
using a credit card or borrowing the amount would eventually lead to an increase in Judy’s
liabilities.
Alternatively, she could do extra work to make more money, which would increase
her assets (i.e. cash). In this instance, Judy would have to part with her free time and efforts
to do the extra work but in return she would be able to increase her cash / bank balance on
getting paid for the same.
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 because a personal budget is done to not just get a
clearer picture of where the cash comes from and goes for but to also afford an opportunity
for exercising better control of available funds. Thus, credit cards, if not used prudently,
could end up getting an additional item of expense (i.e. interest expense on credit card
amount due) added to the cash outflows listed in the 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.
At times the assets added to the balance sheet (thanks to the purchases made through
credit cards) may be used or consumed completely even before the credit card liabilities are
due for payment.
Part C:
Two advantages of selling the home without hiring a realtor are listed below:
(1) Not having to pay any fees for the realtor’s services: Paying realtor’s fees goes on to
reduce the net proceeds received from sale of the home.
(2) Securing our own interest instead of letting the realtor serve their interests at the expense
of our own interest: This is particularly true in instances wherein the risk of unscrupulous
realtors getting hired to do the sale of home is higher.
Two disadvantages of selling the home without hiring a realtor are listed below:
(1) Not having a readily available listing of potential home buyers: Realtors, being in the
business and through their experience in the field, have a ready list of potential buyers which
a lay person may not have.

(2) Not always possessing the skills to convert potential home buyers into actual buyers:
Realtors possess the skills to market the home properly and convince potential buyers into
buying the home.