AnswersPersonal Finance - EL3403Budgeting and Being a Smart Consumer

Financial Reserves Answers

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1
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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.
2
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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.
3

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.
4

Which of the following would you list as an “Essential (Fixed)” expense?

A
Electricity bill
B
Telephone usage bill
C
Car repair
D
Rent
5

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) expenseb.Emergency fundc.Essential (fixed) expensed.Non-essential expense

A
A
B
B
C
C
D
D
6

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
He agreed to pay the same amount every month.
7

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
8

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.
9

Which of the following statements describes a part of a reasonable method for increasing the amount of savings in the budget?

A
Keep “Essential Expenses (Fixed)” the same amount every time the budget is revised.
B
Occasionally pay a bill later than due, in order to increase available cash.
C
Find a way to reduce “Non-Essential Expenses” in the monthly budget.
D
Use only money from the coin jar towards “rainy day” expenses.
10

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 FrequencyAccountMonthly amountItemsEssential (fixed)MonthlyChecking$1,292Rent, car, insuranceEssential (variable)MonthlyChecking$420Basic groceries, telephone, electricity, cable TV, batting practiceNon-essentialMonthlyCash$260Snack items, restaurants, gifts, moviesOther (predictable)AnnualSavings$130Health exams, clothing, food, baseball coach magazineOther (unpredictable)AnnualEmergency savings$210Non-insured healthcare, repairs, and income replacementOther (long-term)5 yearsVacation savings$50VacationTotal $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

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