financial reserves

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: Expense type Account Weekly deposits Essential (Fixed) 1st Checking account $219 Essential (Variable) 1st Checking account $115 Non-essential 2nd Checking account $40 Other (Unexpected) Emergency savings account $20 Other (Predictable) Education investment fund $10 Other (Predictable) Retirement investment fund $40 Other (Predictable) Emergency savings account $15 Total paycheck $498 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? a. $40 b. $60 c. $74 d. $55

c

Nonessential expenses

- eating out ot snacks - video games or movies - clothing

Essential Expenses (flexible)

- food - gas - phone

Choose the correct comparison and rationale. "An emergency fund is most similar to..." a. ...an insurance policy, because it might not cover all of your expenses. b. ...an insurance policy, because it provides a measure of security against a disaster. c. ...a savings fund, because it should be kept as liquid as feasible. d. ...a savings fund, because it is a luxury that comes after paying bills or debts

b

Essential Expenses (fixed)

- rent or mortgage - car payments - insurance

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? a. $80 b. $74 c. $160 d. $37

b

Sammy makes $2,362/month as a baseball coach. He is making a budget, and has created the following chart in order to divide his monthly paycheck into his various accounts: Expense type Frequency Account Monthly amount Items Essential (fixed) Monthly Checking $1,292 Rent, car, insurance Essential (variable) Monthly Checking $420 Basic groceries, telephone, electricity, cable TV, batting practice Non-essential Monthly Cash $260 Snack items, restaurants, gifts, movies Other (predictable) Annual Savings $130 Health exams, clothing, food, baseball coach magazine Other (unpredictable) Annual Emergency savings $210 Non-insured healthcare, repairs, and income replacement Other (long-term) 5 years Vacation savings $50 Vacation Total $2,362 Sammy makes monthly deposits from each paycheck into the various accounts, and then spends from those accounts only for their defined purposes. He knows that it is not a perfect system, but thinks that it will help to assure coverage for future expenses. Using his essential expenses as a guideline, how much will Sammy need to save if he wants to have 3 times the amount of his living expenses in the bank as part of his emergency savings. How long will it take him to achieve his goal? a. $1,712; approximately 8 months b. $5,136; approximately 24 months c. $6,486; approximately 30 months d. $2,162; approximately 6 months

b

Your monthly living expenses are $1500 on an income of $1,650 per month. Your goal is to have an emergency fund of 4 times your monthly living expenses. Your emergency fund savings account has $2,400 and you put the remainder of your monthly income into the emergency fund each month. How much more money would you have to save each month to complete your emergency fund in 12 months? a. $300 per month b. $150 per month c. $75 per month d. $60 per month

b

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? a. It cannot be eliminated in a later budget, in order to save money. b. Living expenses have a higher priority than any other type of expense. c. The spender controls the amount of the rent by choice of apartment. d. It is by contract the same amount every month.

d

Occasional expenses

PREDICTABLE - travel - auto maintenance - home maintenance - retirement - hobbies UNEXPECTED - medical emergencies - family emergencies - unemployment - household emergencies - auto repairs

Alberto is making a budget. He owes a cell phone bill of $60 per month for 23 more months, plus the fees for any extra usage such as text messaging or extra minutes. Which of the following is the correct category for this expense? a. Essential (flexible) expense b. Emergency fund c. Essential (fixed) expense d. Non-essential expense

a

Davi is mapping out essential and non-essential expenses and is perplexed about where to categorize gift-giving. Davi considers splitting gifts into 4 different spending categories (Essential—Fixed, Essential—Variable, Non-Essential, and Other—Predictable). Then, he decides that 4 categories would be too complicated. He thinks that it will be simpler to budget all gifts under one category only and decides on the category "Other (Predictable)". In addition, he will open a special savings account only for gift expenses, both for known people and occasions, and for general gifts that he may decide to give in the future. Which statement below is not a reasonable reason for Davi's decision to establish a separate account for gift expenses. a. Budgeting categories are exact, and gifts can fit into only one of them. b. He will be able to give both planned and unplanned gifts that he has budgeted for. c. He will still be able to cover other important living expenses. d. Simplifying will help assure that he can follow his budget plans.

a

Which of the following statements best gives the reasons that a data usage bill for a smart phone is an essential (variable) expense? a. It is an obligation to pay, but the spender has some control over its amount. b. It cannot be eliminated in a later budget, in order to save money. c. It is expected to be the same amount every month. d. Bills for services rendered have a higher priority than any other type of expense.

a

Which of the following would you list as a non-essential expense? a. A fashionable pair of blue jeans. b. Electricity for your home. c. Insurance on your car. d. A bill for data usage on a smart phone.

a

Which of these is an example of using financial reserves for a occasional expense? a. 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. b. You are hit with a summer heat wave and your utility bill spikes, so you use your credit card to pay the bill and pay off the balance over the next few months. c. You graduate college and need to start paying back your student loans, so you devote some of your income every month to paying down the debt. d. You are never quite sure how much money you spend on food every month, and every so often you need to pull a tiny bit from your retirement fund to pay for groceries.

a

Emergency funds are important because they ____________. a. earn interest, making it unnecessary to work. b. are available when they are most needed, such as after a job loss. c. make it possible to pay monthly bills. d. keep money separated so that the balance will not change.

b

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. I. She realizes the importance of having an emergency fund. II. She wants to build up her retirement account. III.She understands that reducing expenses can increase savings. a. I b. II and III c. I and III d. II

c