Saturday, January 16, 2010

Answers to Financial Questions

To simply answer the two questions, you can use a cash flow diagram to help you.

Question 1:

The question:
$920(in debt) + $40(you have left) = $960.
So where is the missing $40?
The answer:
In fact the question is using the wrong formula. You cannot add your total debt to cash flow. Debt is what you own people, and cash flow is what you have currently. To make thing clearer, let's say you use your remaining cash flow money of $40 to pay off part of the debt, the formula will be:
Total debt left = $920 - $40 = $880 which is equals to your expenses. This formula uses minus instead of plus.

Question 2:

The question:
$960(in debt) + $60(you have left) = $1020
Where does the extra $20 come from?

The answer:
Same as the previous question, wrong formula is used. You cannot add your total debt to cash flow. Debt is what you own people, and cash flow is what you have currently. To make thing clearer, let's say you use your remaining cash flow money of $60 to pay off part of the debt, the formula will be:
Total debt left = $960 - $60 = $900 which is equals to your expenses. This formula uses minus instead of plus.

2 comments:

Lee said...

Total debt left = $960 - $60 = $1000 which is equals to your expenses.

typo

Freedom Achiever said...

Hi Lee,

Thank for pointing out the error.

Regards,
Freedom Achiever

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