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Financial Planning Basics: Hedging Risk A) Importance of a cushion for emergencies - financial planners recommend 3 to 6 months expenses.

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


General Information:

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


Assets:

Checking account: $4,500

Savings account: $3,000

Vested retirement balance: $23,800

Residence: $225,000

Automobiles: $30,000

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.

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