Why is looking at cash flow an important step in a good financial plan?

1 answer:

8 0

Cash flow refers to the constant movement of money, both where and how much you're spending as well as how much you're earning in return. Looking at cash flow is an important step in a good financial plan because it can help you determine places where you need to scale back on spending. For example, if you buy a $2 cookie every day, it won't feel like you're spending a lot of money. But after a month, you will have spent $60 on cookies that could have gone to something else, like car repairments. By being aware of this spending, you can save more money and have better control of spending habits.

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Will is currently in a 22% tax bracket and has a 7.2% savings rate of return. What is his after-tax savings rate of return

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Based on the information given his after-tax savings rate of return is 5.62%.

<h3>After-tax saving rate of return</h3>

Using this formula
After-tax savings rate=Saving rate of return×(1-Tax rate)

Where:

Saving rate of return=7.2%

Tax rate=22%

Let plug in the formula

After-tax savings rate=0.072×0.78

After-tax savings rate=0.05616×100

After-tax savings rate=5.62% (Approximately)

Inconclusion his after-tax savings rate of return is 5.62%.

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