Question

clothing $85
savings $85
medical $0
miscellaneous $85
grace then adjusts her budget for her main expense categories.

old budget\t\tnew budget
housing $510\t\thousing $510
food $204\t\tfood $254
transportation $295\t\ttransportation $295
insurance $51\t\tinsurance $51
debts $25\t\tdebts $0
entertainment $85\t\tentertainment $100
clothing $85\t\tclothing $100
savings $85\t\tsavings $100
medical $85\t\tmedical $0
miscellaneous $85\t\tmiscellaneous $100
evaluate grace’s new budget.

a. her new budget should have money in every budget category, including debts and medical expenses.

b. her new budget should have money in medical expenses because she does not know what medical problems she will encounter in the future.

c. her new budget is fine because debts and medical expenses were not needed last month.

d. her new budget should have money in debts so that she can afford to go into debt if she has medical expenses

Explanation:

• Option A: While it's good to have coverage for all categories, the idea that "every" category must have money is too rigid. For example, if there are no debts, allocating money to debts isn't necessary. But medical expenses are unpredictable, so this option is partially incorrect.
• Option B: Medical expenses are unpredictable (e.g., accidents, illnesses). Even if there were no medical costs last month, setting aside money for medical in the budget is wise to prepare for future unknowns. This makes sense.
• Option C: Just because there were no medical or debt expenses last month doesn't mean they won't occur in the future. Not budgeting for medical (an unpredictable expense) is risky, so this is incorrect.
• Option D: The purpose of a budget isn't to "afford to go into debt" but to plan and manage finances. Also, not budgeting for medical is still an issue here, and the reasoning about debt is flawed.

Answer:

B. Her new budget should have money in medical expenses because she does not know what medical problems she will encounter in the future.