Chapter 1: General Problem Solving
Now that you have seen a number of general problem solving techniques and plenty of examples in this module, let’s try to put it all together. In real life, sometimes we have to make big decisions. A major career change or relocation can throw your life into disarray, but perhaps even more importantly, such a change can have lasting effects on your financial future.
Suppose you are currently working as a bank teller in your hometown. Your job pays $11 per hour, with 10% taxes taken out of each paycheck. For simplicity, assume you have to work 260 days of the year (you don’t work weekends), 8 hours a day. By carefully budgeting you can keep you monthly expenses to about $1500.
But now another job offer has come up. You have the opportunity to become an assistant manager. The only catch is that you’ll have to move to a new branch of the bank opening up in a nearby metropolitan area. So here are the details:
The assistant manager salary starts at $32,000. This puts you into the next tax bracket, which means that you will pay $2500 plus 15% of the amount earned over $25,000. Because you are moving to a bigger city, your living expenses will rise as well. After a little research, you determine that your monthly expenses will probably be around $2000.
Should you make the move and take the job offer?
This is a tough decision! We should do some calculations first. How much money do you make in a full year as a bank teller? First let’s find out how many total hours you work in a year.
[latex]8 \; \textrm{hrs.}/\textrm{day} \times 260 \;\textrm{days} = 2080 \;\textrm{hrs.}[/latex]
Next, multiply by the hourly wage to determine your gross income.
[latex]2080 \;\textrm{hrs.}\times 11 \; \$ / \textrm{hr.} = \$22,\!880[/latex]
But don’t forget about taxes! You will have to pay 10% (or 0.10) of this amount to the US government.
$22,880 x 0.10=$2288
After subtracting the tax, this leaves you with your net income, or take-home pay:
$22,880-$2288=$20,592
Ok, so now let’s figure out the yearly expenses. If monthly expenses are $1500, then each year you will pay:
12 x $1500=$18,000
Finally, after the bills are paid, you can do what we want to with the remainder. This is our discretionary budget, and it is as good a measure as any as to how successful you are.
$20,592 – $18,000 = $2592
Now keep that number $2592 in mind. Let’s see what kind of discretionary budget you will have if you take the new job. Since salary is, by definition, a yearly income amount, our first task is to compute and deduct the taxes. This time, you will pay $2500 plus 15% of the difference between the salary and $25,000.
$2500+($7000 x 0.15)=$3550
Therefore, the net income would be:
$32,000-$3550=$28,450
It’s a higher net income than you are currently making, but how will it stack up against the higher cost-of-living expenses in the city? Take the estimated monthly expenses of $2000 and multiply it by 12 months:
12 x $2000=$24,000
Thus your new discretionary