Let's break down and solve Ethan's financial planning step-by-step.
### Step 1: Calculate Ethan's Fixed Expenses
- Car expenses: \$115
- Cell phone: \$30
- Insurance: \$95
- Church contribution: \$80
Add these expenses together to get the total fixed expenses:
[tex]\[ \text{Fixed expenses} = \[tex]$115 + \$[/tex]30 + \[tex]$95 + \$[/tex]80 = \$320 \][/tex]
### Step 2: Calculate Ethan's Net Disposable Income
- Monthly income: \$800
- Total fixed expenses: \$320
Subtract the fixed expenses from the monthly income to calculate the disposable income:
[tex]\[ \text{Disposable income} = \[tex]$800 - \$[/tex]320 = \$480 \][/tex]
### Step 3: Ethan's Spending Plan to Save for an Emergency Fund
Ethan's goal is to create a \[tex]$500 emergency fund as quickly as possible. Given his disposable income of \$[/tex]480, he can allocate most of this towards his emergency fund.
### Spending Plan Outline:
- Savings: \$480 (all of the disposable income)
- Clothing: \$0
- Gifts: \$0
- Entertainment: \$0
- Amount Remaining: \$0
### Step 4: Calculate Time to Reach Emergency Fund Goal
Ethan needs \[tex]$500 for his emergency fund. With a monthly saving of \$[/tex]480:
[tex]\[ \text{Months required} = \frac{\[tex]$500}{\$[/tex]480} \approx 1.04167 \][/tex]
This means it will take slightly over 1 month for Ethan to save up the \$500 for his emergency fund since:
[tex]\[ \text{Partial month} = \left(1 - 0.04167\right) \times 30 \approx 1.25 \text{ days} \][/tex]
### Step 5: Create an Ongoing Spending Plan
After establishing the emergency fund, Ethan can then evaluate and create an ongoing spending plan:
- Ensure that he continues to contribute to his emergency fund or other savings.
- Allocate funds to other categories like clothing, gifts, and entertainment as necessary, staying within his disposable income limit.
### Summary
- Fixed Expenses: \$320
- Disposable Income: \$480
- Emergency Fund Goal: \$500
- Months Required to Achieve Goal: Approximately 1.04167
- Initial Spending Plan:
- Savings: \$480
- Clothing: \$0
- Gifts: \$0
- Entertainment: \$0
- Amount Remaining: \$0
Ethan should be able to establish his emergency fund in a little over one month by following this spending plan. Afterward, his ongoing plan should carefully allocate funds to other categories while still contributing to savings regularly.
