FFC Savings, Budgeting, and Goal Setting 5 — Questions and Answers
Question 1: A client earns $6,000/month and saves $300/month. What is their savings rate?
- 3%
- 5% (Correct answer)
- 8%
- 10%
Correct answer: 5%
Savings rate = savings ÷ income = $300 ÷ $6,000 = 5%, a key metric for assessing savings behavior.
Question 2: Which psychological concept explains why clients struggle to cut a gym membership they never use because they already paid for it?
- Opportunity cost
- Sunk cost fallacy (Correct answer)
- Present bias
- Status quo bias
Correct 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.
Question 3: A short-term financial goal is best defined as one that can be achieved within:
- 6 months
- 1–2 years (Correct answer)
- 3–5 years
- 10+ years
Correct 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.
Question 4: A client's budget consistently shows a surplus, but they are not building savings. This most likely indicates:
- Their income is too low
- Lifestyle creep or untracked discretionary spending (Correct answer)
- Their fixed expenses are too high
- Their budget categories are miscalculated
Correct 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.
Question 5: Which of the following BEST illustrates the principle of 'paying yourself first'?
- Paying all bills before spending on entertainment
- Automatically transferring $500 to savings on payday before paying any other expense (Correct answer)
- Saving whatever remains after all monthly expenses are paid
- Allocating 50% of income to needs before wants
Correct 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.
Question 6: A client is creating their first budget and doesn't know their spending patterns. What should the coach recommend as the first step?
- Apply the 50/30/20 rule immediately
- Track all spending for 30–60 days before building a budget (Correct answer)
- Estimate spending by income percentile benchmarks
- Start with a zero-based budget from day one
Correct 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.
Question 7: 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?
- $1,600
- $2,400 (Correct answer)
- $2,000
- $3,600
Correct 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.
FFC Savings, Budgeting, and Goal Setting 5
A client earns $6,000/month and saves $300/month.
What is their savings rate?