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Financial Reserves
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Ben and his housemates signed a lease for an apartment for 12 months for $563 per month of which Ben agreed to pay $215 per month. Which of the following statements best gives the reasons that Ben's rent payment is an essential (fixed) expense?
It is by contract the same amount every month.
Which of the following would you list as an "Essential (Fixed)" expense?
Rent
Which of the following would you list as a non-essential expense?
A fashionable pair of blue jeans.
Fixed expenses
Fixed expenses are expenses that remain the same from one period to the next.
Flexible expenses
Flexible expenses are expenses that change from one period to the next.
Occasional expenses
An expense that does not happen on a regular basis is referred to as a occasional expense.
An essential expense (fixed or variable) is one that cannot be reduced in order to save more money, whereas a non-essential expense is one that should be eliminated and directed to savings.
F
The only expenses that can be reduced in order to produce more savings are "Non-essential Expenses" and "Essential (Variable)" expenses.
F
Peggy needs to pay car insurance 2 times every year. She has divided the payment by 6 and saves that amount each month.
Which account below is the best account in which to save this money?
A checking account, or a savings account for other expenses (predictable), and emergencies.
Rogério, a graphic artist, after paying all the expenses in his monthly budget, has a monthly net cash flow of $248. He has decided to add monthly savings to his budget in order to cover his health insurance co-pays and other expenses that come at odd times as listed below:
If Rogério leaves the cash flow in the checking account for all needs that arise, he runs the risk of not having the money for these very important future expenses. He has decided to make an automatic monthly transfer from his checking account to his savings accounts to cover these other predictable expenses.
How can he divide these future expenses into a monthly deposit that can be added to his monthly budget. How much will be left over each month that can be deposited into a general emergency fund?
$83.75 future expenses; $164.25 emergency fund
Sammy makes $2362/month as a baseball coach. He is making a budget, and has made the following chart in order to divide his monthly paycheck into his accounts:
Sammy has included a total row to help make sure that his paycheck can be divided to make deposits into these 4 accounts. If there were any extra, then he would increase one or all of the deposits. If there were not enough, he would decrease one or all of the deposits. Explain how Sammy calculated his total amount deposited.
Answers will vary, but the student's answer should show understanding for the importance of making sure that the total deposits (expenses + savings) equals the income.
If your essential expenses plus your non-essential expenses are greater than your income, then your financial reserves are growing larger.
F
Ann needs to have money available to pay an annual renters insurance premium of $224, ten months from now. She has savings of $0 in her current budget, a retirement fund of $4,833, and a reserve fund of $0.
Which of the following would NOT be part of her reasonable plan to establish a reserve fund for this expense?
Pay the premium right away using the retirement fund investments.
Sarah's essential (fixed) expenses are $750 per month, her essential (flexible) expenses are $500 per month, and her non-essential expenses are $250 per month. Her 401-K retirement account has $6,000, her education savings account has $3,000, and her emergency fund savings account has $2,300. Sarah wants an emergency fund of 5 times monthly living expenses.
How much more does Sarah need to save to have an adequate emergency fund?
$5,200
Dylan's essential (fixed) expenses are $900 per month, his essential (flexible) expenses are $400 per month, and his non-essential expenses are $295 per month. His 401-K retirement account has $12,000, and his emergency fund savings account has $3500. Dylan wants an emergency fund of 3 times monthly living expenses.
How much more does Dylan need to save to have an adequate emergency fund?
$1,285
Bryan is mapping out essential and non-essential expenses. He owes a car payment of $235 per month for 45 more months. Bryan is thinking about selling the car because he knows he can walk to work, which is only 3 blocks from his home.
Which of the following is the correct category for this expense?
Essential (fixed) expense
Emergency funds are important because they ____________.
Are available when they are most needed, such as after a job loss.
Mr. Thom makes $25,900/year salary as a document processor. He has made the following chart in order to divide his weekly paycheck into his accounts:
Unfortunately, he has made a mistake in adding the numbers and has not allocated all of the paycheck. If he deposits the difference into the two emergency savings accounts, how much total per week can he then put towards emergency savings?
$74
Choose the correct comparison and rationale. "An emergency fund is most similar to..."
...An insurance policy, because it provides a measure of security against a disaster.
Michael needs to pay car insurance premiums of $958 two times per year. He has decided to make deposits from each paycheck to a savings account for "Other Expenses (Predictable)" to cover this expense. How much should Michael deposit from each paycheck if the paycheck is bi-weekly?
$74
Ben and his housemates signed a lease for an apartment for 12 months for $563 per month of which Ben agreed to pay $215 per month. Which of the following statements best gives the reasons that Ben's rent payment is an essential (fixed) expense?
It is by contract the same amount every month.
Which of the following statements best gives the reasons that a long-distance telephone bill is an essential (variable) expense?
It is an obligation to pay, but the spender has some control over its amount.
Using a portion of her savings as a down payment, Sarah bought a new car in order to commute to her new job, reducing her savings account to only $2220. From her expendible income of $2440, essential expenses (fixed) are $1010 per month, essential expenses (flexible) are $500 per month, and nonessential expenses are $430 per month. Sarah has decided to reduce her nonessential expenses for 9 months to only $230 per month, in order to build her savings back up to $5820. Then she will return her nonessential expense budget to the original $430 per month.
Choose the reason or reasons why Sarah would spend less money every month temporarily in order to have this fund.
She realizes the importance of having an emergency fund.
She understands that reducing expenses can increase savings.
Which of these is an example of using financial reserves for a occasional expense?
You know that your car will need a tune-up and other routine maintenance every winter, so you save a little money every month in preparation and use the saved money to pay when winter comes around.
If you want to increase the amount of monthly savings in your budget, which of the following methods would reasonably be the most effective?
Determine a "Non-Essential Expense", or any other expense, that can be reduced.
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