# Jenny's Financial Journey

## Meet Jenny!

Meet Jenny. She works as a bank teller and has a salary of \$40,000. She has a monthly car payment of \$230 and \$20,000 in student loans. She is very excited to buy her first house. She knows she first needs to calculate her monthly income. She deducts taxes from her annual salary and calculates she makes \$28,000 annually. She divides that by twelve and subtracts her monthly car payment and her living expenses of \$500. So far, her monthly income is \$1,603.33.

## But don't forget student loans....

Along with her car payment, living expenses, and taxes, Jenny must also subtract her student loan payment from her monthly income. Jenny has \$20,000 in student loans. Using her finance app in her calculator she figures that she would have to pay \$230.16 in student loans each month. Lastly, Jenny subtracts this from \$1603.33 and figures she has a monthly income of \$1373.17.

*Although Jenny took the easy route and used her calculator, she could have done this problem by hand. Using the Present Value equation on the right, she could have calculated her student loan payment.*

## What can she afford?

Jenny knows she could spend up to \$1373.17 per month on a house payment. Taking into consideration the mortgage rate of 4.625% (as of December 31, 2013), Jenny uses her graphing calculator and finance app and discovers she can afford a \$267, 081.20 house.

*Jenny could have also used the Present Value equation to the left to figure out the price of a house she could afford.*

## Buying a house!

However, she knows she wants to save for her future and wants to look in a lower price range. Jenny decides to go house hunting in the \$100,000-150,000 range and falls in love with a 3-bedroom 1-bathroom single family house in Overland Park. It costs \$125,000 and she is ecstatic she can get such a great house for such a reasonable price. She again uses her graphing calculator to see how much it would cost per month for her dream house. She calculates that she would have to pay \$642.67 per month for her house. She would save \$730.50 per month and she could use that money to save for her future.

*To the left is the Present Value equation Jenny could have used to purchase her dream house. She need to find the R value and she knew the Present Value was 125,000. The i value was .04625/12 (the mortgage rate over 12 monthly payments) and the n value was 360 (12 times 30).*

## Weighing her options

Since Jenny decided to be more frugal when buying her house, she wants to calculate what would happen if she increased her minimum monthly payment by 15%. Her monthly payment would now be \$739.07 because she added \$96.4o (642.67 times .15) to her original monthly payment. She orignially calculated that she would spend \$231,361.20 if she didn't raise he monthly payment by 15% and she could spend a total of \$203,096.44 if she did raise her monthly payment by %15, saving \$28,264.76. Not only would she save \$28,264.76, she would also pay it off in 22 years and 11 months instead of 30 years. This would be, by far, the better option for Jenny.