Based on his monthly cash flow, explain what part of Ted's financial plan might be missing and why.
| | A | B |
| :-- | :-------------------- | :----- |
| 1 | Cash Inflows | |
| 2 | Disposable income | $5,000 |
| 3 | Interest on deposits | $0 |
| 4 | Income from investments | $225 |
| 5 | Total Cash Inflow | $5,225 |
| 6 | | |
| 7 | Cash outflows | |
| 8 | Rent | $3,000 |
| 9 | Utilities | $250 |
| 10 | Satellite dish | $175 |
| 11 | Cell phone plan | $135 |
| 12 | Car lease payments | $385 |
| 13 | Groceries | $200 |
| 14 | Insurance | $380 |
| 15 | Recreation | $700 |
| 16 | Total Cash Cutflo.. | $5,225 |
Answer (2)
Calculate Ted's monthly savings: $Savings = $5,225 - $5,225 = 0 . - Observe that Ted's savings are $0, indicating he spends all his income.
Identify the missing component: savings and investments for the future.
Conclude that Ted needs to allocate funds towards savings to secure his financial future. The missing part of Ted's financial plan is savings and investments. He needs to create a budget that allows him to save a portion of his income each month to secure his financial future. S a v in g s an d in v es t m e n t s
Explanation
Understanding the Problem We are given Ted's monthly cash flow, which includes his income and expenses. We need to determine what part of his financial plan might be missing based on this information.
Calculating Monthly Savings First, let's calculate Ted's monthly savings by subtracting his total cash outflows from his total cash inflows. Ted's total cash inflow is $5,225, and his total cash outflow is 5 , 225. T h ere f ore , hi s m o n t h l ys a v in g s a re : $Savings = Total\ Cash\ Inflow - Total\ Cash\ Outflow = $5,225 - $5,225 = 0 $
Identifying the Missing Component Since Ted's savings are $0, this indicates that he is spending all of his income each month. A crucial part of any financial plan is saving and investing for the future. This includes saving for retirement, emergencies, and other long-term goals. Ted's current financial situation suggests that he is not allocating any funds towards these essential aspects of financial planning.
Conclusion Therefore, the missing part of Ted's financial plan is savings and investments. He needs to create a budget that allows him to save a portion of his income each month to secure his financial future.
Examples
Imagine you are managing your personal finances. Analyzing your cash flow, just like Ted's, helps you identify if you're spending all your income or saving enough for future goals. If you find you're not saving, you can adjust your spending habits to allocate funds towards savings and investments. This ensures you're prepared for unexpected expenses and can achieve long-term financial security, such as a comfortable retirement.
Ted's financial plan is missing savings, as he currently has $0 set aside after accounting for all his cash inflows and outflows. Allocating funds toward savings is crucial for financial security and planning for future needs. Without savings, Ted risks being unprepared for emergencies or financial changes.
;
