FFC Savings, Budgeting, and Goal Setting 5

Question 1

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

Accepted Answer

5%

Answer

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?

Accepted Answer

Sunk cost fallacy

Answer

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:

Accepted Answer

1–2 years

Answer

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:

Accepted Answer

Lifestyle creep or untracked discretionary spending

Answer

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'?

Accepted Answer

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

Answer

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

(FFC) Financial Fitness Coach Certification Practice Test