Question

Rogério, a graphic artist, after paying all the expenses in his monthly budget, has a monthly net cash flow of $248. He has decided to add monthly savings to his budget in order to cover his health insurance co-pays and other expenses that come at odd times as listed below:
Predictable Expense Amount
Medical exams, lab co-pays, health insurance co-pays $640 every year
Auto maintenance $35 per quarter
Auto registration $225 per year

If Rogério leaves the cash flow in the checking account for all needs that arise, he runs the risk of not having the money for these very important future expenses. He has decided to make an automatic monthly transfer from his checking account to his savings accounts to cover these other predictable expenses. How can he divide these future expenses into a monthly deposit that can be added to his monthly budget. How much will be left over each month that can be deposited into a general emergency fund?

a. $75 future expenses; $173 emergency fund
b. $248 future expenses; $0 emergency fund
c. $83.75 future expenses; $164.25 emergency fund
d. $128.34 future expenses; $119.66 emergency fund

Answer 1

The correct answer would be C.

Answer 2

Solution:

Monthly net cash flow of Rogerio=$ 248

Total cash flow in a year =$248 × 12=$ 2976

Predictable Expense Amount  

Medical exams, lab co-pays, health insurance co-pays $640 every year  

Auto maintenance $35 per quarter  

Auto registration $225 per year

Total Expense = $ 640 + $ 35 × 4 +$ 225

                          = $ 640 + $140+ $ 225

                           = $ 1005

Balance left in Rogerio Account after Expenses= $ 2976 - $1005

                                                =  $1971

Money left in Rogerio account after each month for emergency fund = $\frac{1971}{4}=164.25$$

Total income = $ 248

Money for future expenses= $ 248 - $ 164.25= $ 83.75

Option c. $83.75 future expenses; $164.25 emergency fund