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Alexa has finished her culinary training program and is now working full-time as a chef in a hotel resort restaurant. She has tripled her salary from when she was working part-time to pay her expenses through school. How should this increased income affect her budget? Make comparisons with her previous budget and her current budget.




Monthly Budget		Previous BudgetCurrent Budget

Income Wages		\$800\$2400

Expenses		\$300\$300

Rent		\$60\$60

Utilities		\$200\$250

Groceries		\$100\$150

Savings		\$30\$30

Bus Pass

Net Income		\$110\$1610






AAlexa is earning quite a bit more money and her expenses reflect the change in income.
BAlexa is earning quite a bit more money than she was previously. She has worked hard and deserves to spend a lot of money on herself.
CAlexa is earning quite a bit more money than she was previously. This would be a good time for her to re-evaluate her budget. Part of the extra money she is making could be put in her savings account.

Verified Answer :

  • Analyze the budget data: Her net income increased significantly from \(\$110\) to \(\$1610\) while total expenses only rose slightly by \(\$100\).
  • Evaluate the options: Options (a) and (b) are inaccurate or unsound, while (c) provides a proactive and financially stable recommendation.
  • Final Recommendation: Option (c) is the best choice, as it emphasizes financial planning and consistent saving.
  • The correct choice is: \(\boxed{c}\)

Explanation

  1. Comparing Previous and Current Budgets

To analyze Alexa's budget, we start by comparing her previous and current financial situations. Previously, she earned \(\$800\) per month. Her total expenses were \(\$300 + \$60 + \$200 + \$100 + \$30 = \$690\), resulting in a net income (savings capacity) of \(\$800 - \$690 = \$110\). After culinary school, her income has tripled to \(\$2400\). Her current expenses are \(\$300 + \$60 + \$250 + \$150 + \$30 = \$790\), which results in a net income of \(\$2400 - \$790 = \$1610\).

  1. Evaluating Financial Recommendations

We evaluate the three provided options to determine the best financial approach:

  • Option (a) suggests her expenses reflect the change in income. This is not accurate, as her expenses only increased by \(\$790 - \$690 = \$100\), which is minimal compared to the \(\$1600\) increase in monthly income.
  • Option (b) suggests she spend a lot of money on herself because she worked hard. While rewarding oneself is natural, spending a large portion of a significantly increased income without planning is generally poor financial advice.
  • Option (c) suggests re-evaluating her budget and increasing her savings. This is the most sound financial strategy, as it allows her to plan for long-term goals and ensures her increased earnings are managed wisely.
  1. Conclusion

The most appropriate course of action is for Alexa to take advantage of her increased disposable income to secure her financial future. By re-evaluating her budget, she can identify areas where she can comfortably increase her savings or invest in long-term goals, rather than allowing her expenses to inflate unnecessarily or spending impulsively. Therefore, option (c) is the correct recommendation.

Examples

Effective budgeting is essential for long-term financial health. Imagine you receive a bonus or a raise at work; instead of immediately spending that extra money on non-essential items, a smart approach is to set aside a portion for savings or investments while keeping your living expenses relatively stable. This practice, known as lifestyle creep avoidance, helps you reach financial independence faster by ensuring your savings grow proportionally with your income.

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