FFC Savings, Budgeting, and Goal Setting 2 — Questions and Answers
Question 1: A client consistently overspends in the dining-out category. Which budgeting technique best addresses category-specific overspending?
- Zero-based budgeting
- Envelope method (Correct answer)
- Pay-yourself-first
- 50/30/20 rule
Correct answer: Envelope method
The envelope method allocates physical or virtual cash to specific categories, making it impossible to overspend once the envelope is empty.
Question 2: Which savings vehicle is MOST appropriate for a client building a 6-month emergency fund?
- Stock index fund
- High-yield savings account (Correct answer)
- Certificate of Deposit (CD)
- Money market mutual fund
Correct answer: High-yield savings account
A high-yield savings account offers liquidity and FDIC insurance, making it ideal for emergency funds that may need immediate access.
Question 3: A client earns $5,000/month and wants to save $500/month. Which goal-setting framework would best structure this objective?
- SWOT analysis
- SMART goals (Correct answer)
- Pareto principle
- PEST analysis
Correct answer: SMART goals
SMART goals (Specific, Measurable, Achievable, Relevant, Time-bound) provide a clear framework for defining and tracking savings objectives.
Question 4: What is the primary disadvantage of a 12-month CD for emergency savings?
- Lower interest rates than savings accounts
- Early withdrawal penalties reduce liquidity (Correct answer)
- Not FDIC insured
- Subject to stock market risk
Correct answer: Early withdrawal penalties reduce liquidity
CDs impose early withdrawal penalties, which compromises the liquidity essential for emergency funds.
Question 5: A client's budget shows total income of $4,000 and total expenses of $4,200. This is called a:
- Budget surplus
- Budget deficit (Correct answer)
- Zero-based budget
- Balanced budget
Correct answer: Budget deficit
When expenses exceed income, the result is a budget deficit, indicating the client is spending more than they earn.
Question 6: Which approach helps a client distinguish between needs and wants when reviewing their budget?
- Debt avalanche method
- Values-based budgeting (Correct answer)
- Dollar-cost averaging
- Sinking fund method
Correct answer: Values-based budgeting
Values-based budgeting aligns spending with personal priorities, helping clients consciously distinguish necessary expenses from discretionary ones.
Question 7: A client wants to save $3,000 for a vacation in 12 months. Using a sinking fund, how much should they set aside monthly?
- $200
- $250 (Correct answer)
- $300
- $350
Correct answer: $250
Dividing the $3,000 goal by 12 months equals $250 per month in a sinking fund.
FFC Savings, Budgeting, and Goal Setting 2
A client consistently overspends in the dining-out category.
Which budgeting technique best addresses category-specific overspending?