Financial Reserves Answers

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: Expense type Frequency Account Monthly amount Items Essential (fixed) Monthly Checking $1292 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 Emergency 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 $2362 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.

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? a.$1,450b.$5,200c.$0d.$950

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?a.Reduce a non-essential expense to save money.b.Establish a savings account for Other Expenses.c.Pay the premium right away using the retirement fund investments.d.Divide it into a monthly savings amount, and add the savings to the budget.

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:Predictable ExpenseAmountMedical exams, lab co-pays, health insurance co-pays$640 every yearAuto maintenance$35 per quarterAuto registration$225 per yearIf 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?a.$75 future expenses; $173 emergency fundb.$248 future expenses; $0 emergency fundc.$83.75 future expenses; $164.25 emergency fundd.$128.34 future expenses; $119.66 emergency fund

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? a.$1,450b.$5,200c.$1,285d.$8,500

The only expenses that can be reduced in order to produce more savings are “Non-essential Expenses” and “Essential (Variable)” expenses.

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.401-K retirement fund with matching deposits from Peggy’s employer.b.A checking account, or a savings account for other expenses (predictable), and emergencies.c.A savings account for college tuition.d.Coin jar.

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?a.Reduce a non-essential expense to save money.b.Establish a savings account for Other Expenses.c.Pay the premium right away using the retirement fund investments.d.Divide it into a monthly savings amount, and add the savings to the budget.

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.

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?a.Emergency fundb.Essential (fixed) expensec.Essential (flexible) expensed.Non-essential expense