hard · Certified Financial Planner General Principles
The Nguyen household has a monthly nondiscretionary outflow of $8,500. Mr. Nguyen is a self-employed consultant with highly variable income, and Mrs. Nguyen is a tenured professor with a stable salary. They currently have $20,000 in emergency reserves.
According to the sizing criteria in the mastery curriculum reference, how should the planner evaluate this reserve?
- The reserve should be increased to at least $25,500 to $51,000 and held in high-yield savings to account for income variability.
- The Nguyens should prioritize paying off their 4% mortgage with the $20,000 rather than holding it as a cash reserve.
- The reserve is adequate because it covers more than two months of outflows and the household has stable dual income.
- The reserve is excessive; the Nguyens should invest $10,000 of the cash into a diversified brokerage account to outpace inflation.
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