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.
Sarah is temporarily lowering nonessential spending to rebuild her savings from $2,220 to $5,820, an increase of $3,600. That reflects the importance of having an emergency fund (I) and shows that reducing expenses increases savings (III). Nothing in the question says she is building her retirement account, so II is not supported. The correct choice is “I and III.”
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