This document provides guidance on creating a budget for living independently after college graduation. It outlines the key steps and considerations, including: 1) Calculating take-home pay after taxes by determining federal, state, and FICA deductions. 2) Setting aside 10% of disposable income for savings and retirement funds by selecting two mutual funds from T. Rowe Price. 3) Finding an affordable two-bedroom apartment by searching online listings and using the common formula of gross monthly income times 0.41 to determine rent budget. 4) Choosing utilities, internet, cable, and cell phone plans and adding costs to the budget. 5) Purchasing a used vehicle within

2. Living on a budget!
C ongrats, you finally made it. High school
seems so long ago. The past four years in
college just flew by and now you’ve got a
few decisions to make. First and foremost,
should you live at home, or venture out on your
own? You decide to stick around the home front
for a while, to save a few bucks and enjoy some
home cooking. But then you get the itch to
strike out on your own. It took a while, but you
managed to land a decent position with a local
company with a starting salary of $35,000 a
year. Thanks to that college degree! You think
you can make it, but to be sure you’ve decided
to get an apartment with a friend to split the
rent and utilities. You think back on those
economics and finance classes you took in high
school and figure maybe you can really use
some of those AOF courses after all. So, get out
your pencil and calculator and begin to plug in
the numbers to see just what it will take to live
on a budget.
Budget Lesson Created by Mike Martin, Lansdowne High School Academy
of Finance, Baltimore, MD
Cover designed by Jenny Martin, Boston University

3. STEP 1: Show me the money!
W elcome to the real world. You’re thinking 35 K for a first job is
pretty cool, but hold on! Before you can write that first rent
check, you have to know how much you’ll actually have at your
disposal to pay for all these new –found bills. Yes, your employer will do
all the deductions for you but you still need to know just how much
Uncle Sam is going to take. And then
there’s the Free State, which is hardly
free. Yes, Maryland wants its cut, too –
both on the state and local levels. And
don’t forget about Social Security and
Medicare. They’ll get their share as well.
So, in order to compute your net take-
home pay – your disposable income –
complete the chart using the tax rates
given here. After doing the math, record
your answers on the accompanying
answer-worksheet.
Figuring your disposable income
MONTHLY INCOME
Gross Net Income
FED TAX State TAX FICA
Income *
$ $ $ $ $
* Put this figure on the final budget chart
What you need to know
to figure your MONTHLY NET INCOME:
Your federal income tax rate is 15%
Your Maryland state income tax rate is 7.283% (which
includes 2.83% to Baltimore County, where you live)
FICA – or, Social Security and Medicare – is a combined
7.65% (the good news here is you only have to pay this much
as an employee – your employer picks up the other half! If you
were self-employed it would be twice this!). Actually Social
Security represents 6.2% and Medicare is the other 1.45%.

4. STEP 2: ‘Pay Yourself 1st’
S o what does this mean? Just what it says – pay yourself first.
Remember learning this during the investing unit at the beginning
of the course? Before you allocate any funds for monthly expenses,
include some for yourself. In other words, put
something away for retirement, college, a new
home, or just for a rainy day fund if times get
tough (like today!) To figure this, stash away
10% of your disposable income and put this
figure on your budget chart. One last thing
here – go to
http://individual.troweprice.com/public/Retail/Mutual-Funds/Our-
Fund-Family and select two mutual funds. Put half the money into each
fund and explain why you chose these two from the more than 60 funds
T. Rowe Price offers and include at least two examples of stocks that
are in the mutual fund. T. Rowe Price is one of the oldest established,
most respected and conservatively run investment firms in the world –
and its headquarters is right here in Baltimore! Now you know why Mr.
Martin stressed “buy what you know” when investing.
T Rowe Price mutual fund # 1 ___________________
Why you selected it?
T Rowe Price mutual fund # 2 ___________________
Why you selected it?

5. STEP 3: Home, sweet home
R emember, you have decided to live with a classmate to share the
rent and any utilities. In order to locate a suitable place to live –
in the southwest area of Baltimore County – go to the internet and
then search for 2-bedroom apartment rentals. Search for what you
would like but make sure it is affordable. To do this, take your
monthly GROSS INCOME and multiply it times .41 to get your
maximum rent. This is the qualifying formula that lenders use to
calculate the housing payment someone can afford. Remember, you are
only paying half the lease payment so what ever you come up with as the
rent figure only use your part for your total cost of the apartment rent. In
other words, you can affectively double your rent portion for the purpose
of locating an apartment. You need to include the following information
about your apartment here:
ADDRESS _______________________
WEBSITE ________________________
TOTAL MONTLY RENT $ _________
RENT (per month) – your part only $__________ * Include this figure
on the budget chart
UTILITIES (gas and/or electric) - INCLUDED: Yes ____ or No ___
If No, you must calculate the approximate cost for utilities. To
obtain this information you need to phone BG&E at 410-685-0123 and
give them the actual address of the place you want to rent. Please
explain what you are doing and be polite when asking! Since BG&E is a
public utility this data is public information!
B efore you move on, don’t forget about your ‘other’ utilities – cable
TV and internet. A land-line phone isn’t vital so you can skip
that since you and your roomy will no doubt each have their own
cell phone, which you can research a plan and add it to the monthly
budget, or simply use the cost of the present phone you have now under
your family’s plan. Whatever cell phone plan you pick, record that much
on your budget chart. The two of you will have to decide on which cable
TV option is best for you – Comcast, Verizon’s Fios, or something else like
a dish. Choose what you want, then record the cost in your budget
(again, you only have to pay your half!). The same goes for the internet.
Pick a provider and split the cost.
Briefly explain why you two decided on this apartment (location,
amenities (what’s this?), price, whatever your rationale! Also,

6. include either a picture of the place or a floor plan. Finally,
describe your cable TV, cell phone, and internet plans, the cost of
each and why you chose them.
STEP 4: Hot wheels!
Y ou have to get to work so you’ll need some wheels. With the tough
economic times you wisely figure to look for a used – or should we
say, pre-owned – car, or truck. Buy what you like, but remember
you have to handle the monthly payment, which we’ll get too shortly.
Because you’re short on cash you’ll have only 10% down (some of the
money you saved right out of college living at home) and finance the rest.
First, you need to search. Go to www.autotrader.com or
www.carmax.com or www.everycarlisted.com and look for a car but when
doing so don’t look for anything older than 5 years. Financing will be
next to impossible, otherwise.
To find the cost you’ll pay for the vehicle you have chosen go to
www.kbb.com and look up the actual Blue Book value of the vehicle and
use that, or the actual asking price (whichever is less) as your final price
to pay!
Once you’ve got your car use the monthly payment calculator at
www.lendingtree.com/partners/autotrader/AutoHowMuchCalc.asp to
figure your monthly payment. In order to get a loan you have to know
your credit score. The higher the score the lower the interest you’ll pay.
To make this realistic we’ll use your grades and convert them to a
corresponding credit score. Here’s how!
To figure your payment, use the following:
REMEMBER TO SHOW YOUR WORK!
TERM:
2007, 2008, 2009 models maximum of 60 months
2005, 2006 models maximum of 48 months
2004 model maximum of 36 months
INTEREST RATE:
Based on your credit rating
A 800-850 score 6%

7. A- 750-799 score 7%
B+ 700-749 score 8%
B- 650-699 score 9%
C+ 625-649 score 11%
C- 600-624 score 13%
D 550-599 score 15%
E= below 550 can’t get a loan rate
To figure your credit rating, use your unofficial transcript (provided by
Mr. Martin who obtained it from records office) to compute your GPA over
the most recent quarter (spring, 2010) and convert it into your credit
score:
A 3.8 + GPA
A- 3.5 – 3.79
B+ 3.25 – 3.49
B- 3.00 – 3.24
C+ 2.75 – 2.99
C- 2.25 – 2.74
D+ 1.90 – 2.24
D 1.75 – 1.89
E = Do we really need to go there?
My GPA is ______ therefore my credit score is _______ and therefore I
can expect an interest rate of _______
My monthly car payment
KBB Retail Price or actual price (whichever is $
less)
Plus - Tags $140.00
$
Plus – MD title tax (6%)
$
= Gross amount due
$
LESS Down payment (10%)
NET Amount Due – This is what you’ll finance $
In a well-written statement explain why you decided on what vehicle
to purchase, including at least 4 features it has and how your grades
affected your payment using this ‘credit scoring system’ and then
place your final numbers in the appropriate sections of your budget
chart.

8. _______________________________________________________________________
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STEP 5: Not so fast!
J ust because you found your car, and somehow managed to obtain
financing doesn’t mean you’re through with the expenses for your
car. In fact, they’re just beginning to add up.
Now you have to calculate how much gas you’ll use for a typical
month. Time to put on your thinking cap! To do this, figure you’ll drive
the typical average of about 12,000 miles per year. Even though gas has
come down quite a bit over the past year figure about $2.50 a gallon for
the year (this is one area you may have to readjust if prices go on wild
swings). So what do you do now? Come on, think. This is just a typical
SAT math word problem, isn’t it? So crunch the numbers and come up
with your answer once you’ve gotten one more item – MPG – or miles per
gallon for your car. To get this, go to
http://www.edmunds.com/calculators/true_fuel.html?fuelcost=2.50 and
locate this bit of vital info. Now you can calculate your costs for gas each
month and when done, put your answer on the monthly budget chart.
Remember to show your work here to obtain full credit!
STEP 6: Are you in good hands?

9. D on’t forget the insurance. You can’t drive without it. To find
about how much you’ll pay each month you’ll have to check out
the actual policies for
typical 16-year-old drivers. It
just so happens, that Mr. Martin
has actual policies for drivers
your age – courtesy of his State
Farm agent. Your cost will be
based on your sex, grades, and
driving record and place of
residence. So go check it out
and remember to fill in your
answer in the right spot on the
monthly budget. But wait! Here
the good news. Remember –
you’re graduating from college
so you’re not a just-starting-out,
high-risk 16-year-old driver.
Your 21 and that means a huge
discount on your insurance premium. A whopping 1/3 discount to be
exact, so make sure you figure that into your final answer and
remember, too, when you graduate college a 3.0 GPA will carry on until
age 25 as a good student discount!
With good grades, a good driving record and other incentives your car
insurance doesn’t have to go through the roof!
As for other types of insurance – life, disability, and
health – here’s what the typical single person would likely opt for. You
don’t need any life insurance, so pass on this one. Disability insurance
is probably a good idea. Because you’re young and hopefully in
somewhat decent shape, you can probably get away with a low cost
policy that will set you back about 1% of your gross monthly income.
Health insurance may be offered by your employer at a discount but you
will have to be on your job for a certain time (likely 6 months or so)
before you can possibly get a substantial portion paid for you. For your
cost, check out the health insurance options offered by Blue Cross and
Blue Shield at www.prefercarefirst.com. Choose a plan that best suits
your needs and include it on your budget chart. NOTE: You don’t have
to provide your real identity – just use your birth date
So where did you rate as a 21-year-old driver? Briefly explain here
what your personal insurance 6-month premium is using the actual
State Farm Insurance policy that best fits your situation – sex,
grades, driving record, residency and then put the insurance figure
in the appropriate place on the budget worksheet. You can get the

10. actual cost for a 16-year-old driver from a real policy from Mr.
Martin, who has policies written by State Farm Insurance. And
remember, once again, your grades, affect your overall cost of
insurance. How much did you save with the ‘age’ discount at 21?
Be sure to note, too, which part of the car insurance policy is the
most expensive – and why is this?
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As for disability and health insurance, how did you figure these two
out and what health plan did you ultimately decide on, and why?
Specifically, what kind of coverage did you opt for, what co-pays will
you have and what prescription plan and associated costs are there?
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STEP 7: What’s in your wallet?

11. I n this day an age it’s most likely that you’ll want to have a credit
card handy just in case you need to charge something once in a
while. Since the crash occurred in September, 2008 credit has
gotten real tight. Even those with an excellent payment history can find
it tough to obtain credit. But don’t despair. You can still get a credit
card if you do your homework.
In order to select the best card for your individual situation here’s what
you need to do. Go to www.creditcards.com or www.bankrate.com or
www.lowcards.com and research the best credit card for your need.
Explain here why you chose the credit card you did. Be sure to
include the rate you’ll pay (any intro rate, if it applies and for how
long), any rewards program you will benefit from, and exactly how
you plan to use the card and your new found credit and how it can
help you.
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Step 8: Food for thought
Y
ou have to have food and this part can really eat up a lot of your monthly
budget. But you don’t have to let it take a big bite out of your plan. In
fact, a plan is all you need. Take the time to figure out a monthly menu

12. and then go shopping – yes, to your favorite grocery store – and load up
with a month’s worth of groceries and household items. You can buy
specials, store brands, name brands, and even use coupons. You can
also share some of the cost of food with your roommate. Lunches during
the work week are on your own (since you’ll both hopefully be at work)
but all other meals and other supplies can be shared if you so desire. If
you buy lunch, figure $6 per day. You decide. But whatever you decide
you need to complete the monthly menu and then fill out your shopping
list for the month, listing each item and price paid, and where you
shopped. Also, you will dine out twice for the month, at a sit-down
restaurant (no fast food here!) and will need to select your menu items
and include a 15% tip for each meal.
Use the menu calendar provided to create your shopping list and
then put your final shopping bill on your monthly budget list!
Step 9: Paying for that sheepskin
T
he good news is you’ve graduated college and don’t have any credit
card debt – yet! Hopefully you can keep it that way and pay off any
monthly balances should you decide to obtain and use a credit
card. You do, however, have one monthly installment debt that needs
to be repaid. It’s your student loan you got for some of your college
education. It is a federal direct loan that is available to every student
regardless of affordability. To
know how much you took out go
to
http://www.staffordloan.com/stafford-loan-info/faq/whats-the-
difference-between-unsubsidized-and-subsidized-loans.php and check
out the chart for the maximum amount that can be borrowed. Add up
the 4 years and use that total for your total student loan. Then make
sure you locate the annual interest rate you’ll pay (this can be found on
the link provided) when you start repaying the loan and figure your
payment over a 10-year period. To calculate your monthly payment, use
this link. Put your final answer in the appropriate place in the budget.

13. http://www.finaid.org/calculators/loanpayments.phtml
Federal Stafford Student Interest
Loan $
Loan Rate
Freshman year
Sophomore year
Junior year
Senior year
TOTAL
Step 10: Time is money
R emember that ‘pay yourself first’ item way back when? Well, it’s
time to do a little calculating to see just how much you would
amass by regularly putting aside 10% of your income each month.
Since you’re about 15 you can figure to have
about half a century (that’s how many years?)
to accumulate your pot of gold.
To do this, use the figure you saved and plug
it into the calculator on the site provided here
to see just how much you have – assuming a
reasonable 8% rate over time (the stock
market has averaged about 10% annually for
the past 100 years, despite this current economic crisis we’re facing). So
how much will you have?
http://cgi.money.cnn.com/tools/savingscalc/savingscalc.html
Savings for Half Century
$
Total $ invested each month
$
Total $ invested in one year
$
Total $ invested over 50 years
Total Amount accumulated with compounding of $
interest

14. Step 11: A slice of pie
T
o see just how our final monthly budget looks it’s time to make – a
little pie. Using Excel – and the accompanying directions – take
your monthly budget figures by groups – taxes, housing,
transportation, food, retail, loans, insurance, medical, fun money –
and create an eye-popping pie chart in color. When finished be sure to
print out your final pie chart. Something that looks like this:
My Monthly Budget
Savings
Fun Money Household
7%
4% 23%
Household
Transportation
Food
Medical
Loans
Taxes Taxes
31% Transportation
Fun Money
14%
Savings
Loans Food
Medical
7% 10%
4%
Step 12: So how did you fare?
W
as there anything left to spend on entertainment or do you
need to start to look for a part-time job to make ends meet?
So were you in the red or in the black? To finish
out the Living on a budget project you have one final
assignment to complete. Take the handout – In the
Red or in the Black -and complete the 4 questions for
homework. Be sure to share the total project with
your parents and get their input on final question
included.
And now, the rest of the story…

15. N ow it’s time to see just how much you spent overall for
the month. To do this use the following budget and
complete it using ACTUAL figures that you calculated
during the budget process. For categories on the monthly
budget list that are footnoted figure your costs based on the
info for each provided.
Monthly Budget
INCOME
TOTAL GROSS INCOME $
MINUS – Taxes: Fed, state, $
FICA (subtract from Gross)
= NET or DISPOSABLE $
INCOME
EXPENSES
Pay yourself 1st – savings $
Housing - rent $
Utilities $
Transportation
Car payment $
Car insurance $
Gas $
Insurance – health, disability $
Medical – Rx $
Food – home/dining out $
1
Retail – Clothing $
2
Retail – Other (Target, etc.) $
Cell phone, internet $
3
Laundry costs $
Installment loans
Student Federal Direct Loan $
Total Expenses $
(add all expenses)
Subtract total expenses from
disposable income and record answer
below
Discretionary Income $
(hopefully what’s leftover!)
For footnotes 1-5
see the following information.
1
For clothing this is where it gets interesting. You’ll need to
estimate, based on your own experience about what you might
spend on clothes for a year and then average for a month. Be
realistic!

16. 2
Expenses like toilet paper, paper towels, shaving, soap
etc. also needs to be estimated based on a list you do
individually or with your roommate. You may either look for
prices at a place like Target or simply include them in your
grocery shopping.
3
Laundry costs should be estimated by using the following:
figure about $3 per load (wash & dry) at a typical laundry mat
or using the apartment’s main washer-dryer. Figure about
two loads per week.