- Budgeting
- Cash Management
- Introduction
- Realize the Importance of Good Cash Management in Achieving Your Goals
- Understand the Different Cash Management Alternatives and How to Compare Them
- Know the Different Types of Financial Institutions
- Understand the Time Commitment Necessary for You to Effectively Manage Your Finances
- Summary
- Assignments
- Consumer and Mortgage Loans
- Debt and Debt Reduction
- Time Value of Money 1: Present and Future Value
- Time Value of Money 2: Inflation, Real Returns, Annuities, and Amortized Loans
- Insurance 1: Basics
- Insurance 2: Life Insurance
- Insurance 3: Health, Long-term Care, and Disability Insurance
- Insurance 4: Auto, Homeowners, and Liability Insurance
- The Home Decision
- The Auto Decision
- Family 1: Money and Marriage
- Family 2: Teaching Children Financial Responsibility
- Family 3: Financing Children’s Education and Missions
- Investments A: Key Lessons of Investing
- Investments B: Key Lessons of Investing
Case Study #3 Answers
Calculations:
After-tax return = before-tax return * (1 – (federal + state marginal tax rate))
4.5% * (1 – ( .35 + .07 ) ) =
The after-tax return is 2.61%
Real Return = (1+ after-tax return)/(1 + inflation) - 1
The after tax, after inflation return is:
(1.0261/1.035) –1 = -.86%
Note: You must take out taxes first, before you take out the impact of inflation.
Recommendations:
- It is very difficult to do much more than keep up with taxes and inflation with liquid assets.
- Only the amount needed to meet immediate emergency needs and short-term goals should be here.
- The final returns are even lower when you factor in the fact that you pay tithes on your increase, which is considered charitable giving.
As a help with this Cash Management section, we have prepared Learning Tool 26: After-tax, ETY, and After-inflation Returns. This spreadsheet may be helpful with understanding the various cash management calculations.
