Liquidity requirements 2014 AM

Why from liquidity requirements for next year don’t deduct annual savings?

-has to pay daughters’ tuition and repay the debt but why from liquidity you don;t deduct also how much they contribute to the fund?

annual savings come from their salaries not from portfolio income

Annual savings are included in their portfolio value. The liquidity requirement is calculating their annual liquidity needs - annual income after taxes. Savings is not income so it isn’t included in the annual need calculation.

Liquidity requirement is what you need to take out of the portfolio. Money you add to it doesn’t need to be taken out again. It’s only if there is a net outflow that you can’t cover from income or other sources and you need to rely on the portfolio for it.

but in 2013 exam AM QUESTION 6 c is a foundation for which will make annual contributions. And for liquidity requirement for a specific year they deduct the contributions.

Why in a case of an individual the contributions to his assets are not deducted from liquidity requirements? Shouldn;t be the same case?

Because in that case there are ongoing liquidity requirements, the outflows are larger than the inflows. In 2014 exam this individial is a net saver, which means inflows exceed outflows. So the portfolio liquidity requirement is only the one-off payments.

Inflows > outflows = net saver, no ongoing liquidity requirements from the portfolio

Outflows > inflows = net spender, you need additional income from the portfolio = liquidity req.

In both cases the outflow was larger than inflow.

Once for foundation in computing liquidity requirement the inflow was deducted

And for individual his inflow wasn’t deducted. Is more in wording?!? “Their annual savings are USD 35000 which are transferred directly into their investment portfolio and immediately invested”

Well I assume the same to happen in case of foundation no?!

Please review the solution carefully, the foundation has a larger outflow from spending than inflow from donations = net spender, outflow > inflow. The individual put his savings into the portfolio directly meaning he has paid off all of his regular expenses first = net saver, inflow > outflow. Can’t make much more of it.