Savings, Budgeting, and Goal Setting Flashcards

A client earns $6,000/month and saves $300/month. What is their savings rate?

Answer: 5%

Savings rate = savings ÷ income = $300 ÷ $6,000 = 5%, a key metric for assessing savings behavior.

Which psychological concept explains why clients struggle to cut a gym membership they never use because they already paid for it?

Answer: Sunk cost fallacy

The sunk cost fallacy causes people to continue a behavior because of past investment rather than evaluating current and future value.

A short-term financial goal is best defined as one that can be achieved within:

Answer: 1–2 years

Short-term goals are generally those achievable within 1–2 years, requiring less capital accumulation than medium or long-term goals.

A client's budget consistently shows a surplus, but they are not building savings. This most likely indicates:

Answer: Lifestyle creep or untracked discretionary spending

When a budget surplus doesn't translate to savings, untracked spending or lifestyle creep is typically consuming the surplus before it can be saved.

Which of the following BEST illustrates the principle of 'paying yourself first'?

Answer: Automatically transferring $500 to savings on payday before paying any other expense

Paying yourself first means directing money to savings immediately upon receiving income, before any spending decisions are made.

A client is creating their first budget and doesn't know their spending patterns. What should the coach recommend as the first step?

Answer: Track all spending for 30–60 days before building a budget

Tracking actual spending for 30–60 days provides real data, ensuring the budget reflects the client's true financial behavior rather than guesses.

A client's goal is to save $12,000 in 2 years. They can save $400/month. Approximately how large is the gap between their plan and their goal?

Answer: $2,400

$400 × 24 months = $9,600 saved, leaving a $2,400 gap from the $12,000 goal, which the coach and client must address.