Cash Flow Management

Question 1

Three Stages in the Budgeting process

Answer 1

1) Estimate the income (gross or net after taxes)
2) Estimate expenditures (both fixed and variable)
3) Budgeting for savings (should be planned as an integral part of the budget and not just as a “hoped-for” residual amount)

Question 2

Liquidity

Answer 2

the ease of converting assets into cash without a significant loss of principle

Question 3

Marketability

Answer 3

the ease of buying and selling an asset

Question 4

Consumer Debt Ratio

Answer 4

should not exceed 20% of net income

Question 5

Home Debt Ratio

Answer 5

Should not exceed 28% of the owners gross income

-this includes principle, interest, taxes, and insurance.

Question 6

Total Debt Payment Ratio

Answer 6

total monthly payments of all debts should not exceed 36% of gross income

Question 7

Savings Ratio

Answer 7

Client should try to save at least 10-15% of net income, not including reinvested dividends and income.

Question 8

PITI

Answer 8

Stands for:

Principal, Interest, Taxes, and Insurance

Question 9

Criteria for deducting alimony

Answer 9

• payments must be made in cash
• must end at death of payee
• cant live longer
• cant be deemed to be alimony

Question 10

is Alimony and Child Support deductible and income recognized?

Answer 10

• Alimony is deductible and recognized as income.

- child support is not deductible and is not recognized as income.