Kimberly works for a well known financial
company as a sales representative. She
earns a small base salary but receives
commission off every product she sells.
Kimberly has basic living expenses in
addition to a student loan. She wants to
start adding to her Roth IRA and buy a new
television and sound system for her house.
She never knows what her monthly income
will be due to the commissions. What
advice can you give her to help her meet
her goals?
1. Pay off the student loan as soon as possible.
2. Put as much as possible into the IRA.
3. Forget the TV and sound system until she has extra money to spare.
thanks...
You're welcome.
To help Kimberly meet her goals of adding to her Roth IRA and purchasing a new television and sound system while dealing with a variable income, here is some advice:
1. Create a budget: Start by listing all of Kimberly's fixed expenses, such as rent/mortgage, utilities, loan payments, and minimum contributions to her Roth IRA. Then, estimate variable expenses like groceries, transportation, and occasional discretionary spending. Deduct these expenses from her expected income to see how much is left for savings and discretionary purchases.
2. Prioritize savings goals: Kimberly should allocate a portion of her monthly income towards her Roth IRA contributions and saving for the new television and sound system. By establishing a specific savings goal for each, she can determine how much she needs to save each month to reach those goals within a specific timeframe.
3. Set up an emergency fund: Given the variable nature of Kimberly's income, it is crucial for her to build an emergency fund. This fund should cover three to six months' worth of living expenses. Setting aside a portion of her income each month for this purpose will provide financial security and peace of mind.
4. Track income and expenses: Kimberly should consistently track her monthly income and expenses to maintain a clear understanding of her financial situation. This will help her identify areas where she can cut back or adjust her spending to reach her goals more effectively.
5. Plan for commissions: Since Kimberly's monthly income is uncertain due to commissions, she should be prepared for fluctuations. She can create a budget based on a conservative estimate of her average monthly income and adjust it as necessary when she receives her actual income. Any additional income from commissions can then be allocated towards her savings goals.
6. Automate savings: To ensure savings are prioritized, Kimberly can set up automatic transfers from her checking account to her Roth IRA and other savings accounts. This way, she can guarantee consistent contributions towards her goals without relying on the discipline to manually transfer money each month.
7. Delay gratification: If Kimberly's income is variable and her expenses are high, it may be wise to delay purchasing the television and sound system until she has achieved other financial milestones. By focusing on her Roth IRA contributions and emergency fund first, she can then save up for discretionary purchases without compromising her financial stability.
Ultimately, the key for Kimberly is to be disciplined with her budgeting, prioritize her savings goals, and be flexible in adjusting her finances based on fluctuations in income. With proper planning and consistency, she can work towards her financial goals while responsibly managing her variable income.