Question

Assume the following annual financial information for Kelli (age 30):

Gross Income $95,000

Income (after taxes) $80,000

Savings $2,500

Rent $18,000

Dry Cleaning $200

Entertainment $2,000

Utilities $1,800

Car Payment $6,600

Auto Insurance $2,400

Student Loans $6,000

Credit Cards $1,200

Utilizing targeted benchmarks, which of the following statements is FALSE regarding Kelli’s financial situation?

Group of answer choices

Kelli’s Housing Ratio 1 is adequate.

Kelli’s emergency fund is adequate.

Kelli’s Housing Ratio 2 is adequate.

Kelli’s current ratio is less than 1

Answer 1

From the above choices, option B (Kelli's emergency fund is adequate) statement is FALSE.

What is Emergency Fund?

EMERGENCY FUND is the fund which is readily available with the person for 3 to 6 months in case of sudden financial loss situations. like loss of job, major expenses on unforseen illness or hospitalization or any other major unforseen crisis like COVID 19 pandemic which happens now, wherein people have lost thier jobs unexpectedtely.

In the above scenario, the Kelli's monthly fixed expenses would be $34,800 which compromises below expenses:

$ 18,000.00	Rent
$    1,800.00	Utilities
$    6,600.00	Car Payment
$    2,400.00	Auto Insurance
$    6,000.00	Student Loan
$ 34,800.00	Total

These are such monthly expenses that Kelli will incurr even if her regular income is not there. She will have to bear these in any case. Since her savings are very less i.e. $ 2,500.00, she will not be able to survive even for single month without job in hand.

Hence, in above scenario, statement that Kelli's emergency funds are adequate are FALSE.