LO 3.2.3: Recommend methods of incorporating planned savings into the cash flow plan.

Question 1

Saving

Answer 1

is the process of putting cash aside in safe, liquid accounts, such as emergency fund

* Cash and cash equivalent accounts
* Checking, savings, money market deposit accounts
* Money market mutual funds
* CDs of short maturity * Be able to easily access cash reserves in times of needs * Only after reserves are established can you address secondary considerations for the balance of your money in savings—viz. keeping pace w/inflation by investing * Conservative, very safe and very liquid * Allows people to protect their situation in the short-term

Question 2

Investing

Answer 2

involves using money, or capital, to purchase an asset that

• • offers the probability of generating an acceptable rate of return over time, and
• • provides potential for earnings while assuming more volatility
• Aggressive, can achieve growth
• Allows people to achieve financial goals in the long term

Question 3

Increasing Savings Through Lifestyle Changes

Answer 3

• 1. Be practical when using debit and credit cards (pay off credit, don’t use overdraft protection)
• 2. By reducing credit card debt, even by small amounts, clients may save considerable amounts of interest each year
• 3. Increase deductibles on auto and homeowners insurance policies (premium savings/increased monthly cash flow)
• 4. Cell phone costs (keep costs within budget)
• 5. Forgo premium cable channels

Question 4

Adequate savings percentage of gross income

Answer 4

Many financial planners recommend that clients allocate at least 10% of gross income to savings

• If only 10-15 years until retirement, need to save more to achieve their set goals
• Employer contributions to qualified plans count towards this savings ratio (not as daunting as it seems)

Question 5

How could you determine that the minimum is being saved

Answer 5

Can monitor by reviewing cash flow statements, saving and investing is an outflow, can divide that by gross income to get the percentage.