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?
Answer
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.
Explanation
Ann needs to save for a predictable expense due in ten months, so a reasonable plan is to set aside money gradually in a reserve fund. She could reduce a non-essential expense, use an Other Expenses savings account, or budget monthly savings of $224 ÷ 10 = $22.40. Paying now from retirement investments is not a reasonable reserve-fund plan because it uses money intended for retirement and the premium is not due yet.
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