Financial Planning Basics: Hedging Risk
A) Importance of a cushion for emergencies - financial planners recommend 3 to 6 months expenses.
Determine what Richard & Mandy should have in their emergency fund and whether they now have a shortfall.
Richard & Mandy
Married 4 years
Mandy's Salary is $55,000
Richard's salary is $50,000
Expenses in the past year:
Fixed outflows*: $29,000
Variable outflows*: $46,000
Checking account: $4,500
Savings account: $3,000
Vested retirement balance: $23,800
Personal Property: $76,000
- * Fixed outflows consist of $18,000 in annual mortgage payments, $8,000 in auto loans, and $3,000 in insurance premiums.
- ** Variable outflows consist of income taxes on wages of $22,000, food of $9,000, transportation of $2,000, clothing/personal of $5,000, utilities of $4,000, and discretionary savings of $4,000.