CFP - GENERAL PRINCIPLES | QUESTIONS AND
ANSWERS | 2026 UPDATE WITH COMPLETE SOLUTION
Adam and Billie have fixed and variable expenses of $80,000 per year. They
each make $60,000. Billie has a small trust which produces marginal income.
How much should they have in their emergency fund?
a. $20,000
b. $40,000
c. $60,000
d. $80,000
e. $120,000 Answer - $20,000 - combined earned income indicates they both
work. 3 months or 1/4 of $80,000
Jeff and Cathy are in their early 30s with two young children. Jeff works making
$5,000 per month. He never completed college (only for two years). Cathy is a
stay-at-home mom. She never complete college, but the two of them are still
paying off college loans. They lost their home in the real estate downturn and
now rent. Rent costs have been increasing. They seem to live from month-to-
month and rely on gifts from parents and food kitchens. What do you do first?
a. establish an emergency fund
b. learn the details of their spending habits
c. determine what kind of home they can afford to buy using current mortgage
rates
,d. make a list of priorities they consider important Answer - Learn the details
of their spending habits - best starting point is data gathering with this couple
What type of specific information should be gathered in the planning process
regarding the client's statement of financial position
Cost or Basis
Encumbrances
Budgeting
Savings and Investment Allocations
Date Assets Were Acquired Answer - I, II, IV, V - cash flow only needed for cash
flow statement
Which of the following would be the most recommended method of
implementing a savings plan?
a. pay all your expenses first, including credit cards, then deposit the remainder
in a money market account
b. simply wait until the end of the month and see if any money is left over
c. deposit a fixed or specific amount from a paycheck into a savings or money
market account.
d. complete a one-year budget, then see if the client can save money Answer -
deposit a fixed or specific amount from a paycheck into a savings or money
market account - pay yourself first is generally the best advice to give to
succeed at savings
A client, married, has come to you for financial planning advice. He has a high-
paying occupation. His wife is a stay-at-home mom with two young children. He
has a very high risk-tolerance with adequate insurance coverage. After a review
of his financial statement, you and he find about 1 month of cash/cash
,equivalents and excessive debt. His large investment position is also highly
leveraged but doing very well. What should you suggest he do first?
a. liquidate some investments and reduce his debt
b. establish a budget and save more of the cash flow into liquid assets
c. establish an emergency fund with at least 6 months of fixed and variable
expenses available in emergency fund type assets
d. do a risk tolerance survey and review his investments Answer - establish a
budget and save more of the cash flow into liquid assets - emergency fund not
realistic investment for risk tolerance
After completing a client questionnaire including a complete financial
statement, cash flow statement, goals, needs, and priorities you have found the
following weaknesses. How would you prioritize them (first, second, etc.)
Lack of Disability Insurance
No Umbrella Coverage
No Emergency Fund
Total Monthly Debt is Greater than 40% of Gross Income Answer - IV, III, I, II -
assume the exam might consider emergency fund first, even above debt
reduction. however no money available for emergency fund so debt reduction
first
Your client, age 35, has a wife and 2 young children. Which of the following
makes the most sense for your goal?
a. establish a 6 month emergency fund in the next year from excess cash flow
b. contribute to a 529 plan at the end of the month until two children go to
college
c. make contributions to two Roth IRAs each year until retirement
, d. make contributions to two deductible IRAs each year until retirement
e. reduce consumer debt over the next year from excess cash flow Answer -
establish a 6 month emergency fund in the next year from excess cash flow -
having proper emergency fund has the highest priority
Mr. and Mrs. Delay are approaching retirement. Their statement of financial
position shows limited retirement assets. Although Mr. Delay has worked all his
life, his income has always been below the maximum Social Security threshold.
As a result, his benefits for both he and his wife will be about half the
maximum available at NRA. His pension benefits available through a prior
employer are also minimal. Since he has been working almost 40 years, he
wants to retire early, what should you do if he approached you to do a financial
plan.
a. tell him he cannot retire until at least NRA
b. do a risk tolerance survey to see if his investments could produce better
returns
c. decline him as a client
d. have the client keep a budget to determine current cash flow needs and
potential savings
e. suggest he get a better job or second job for the next few years to increase
savings and get higher SS benefits Answer - have the client keep a budget to
determine current cash flow needs and potential savings - the budget will
determine both their current situation and their potential needs
Which agencies monitor or oversee commercial banks?
FDIC
Federal Reserve
Comptroller of Currency
ANSWERS | 2026 UPDATE WITH COMPLETE SOLUTION
Adam and Billie have fixed and variable expenses of $80,000 per year. They
each make $60,000. Billie has a small trust which produces marginal income.
How much should they have in their emergency fund?
a. $20,000
b. $40,000
c. $60,000
d. $80,000
e. $120,000 Answer - $20,000 - combined earned income indicates they both
work. 3 months or 1/4 of $80,000
Jeff and Cathy are in their early 30s with two young children. Jeff works making
$5,000 per month. He never completed college (only for two years). Cathy is a
stay-at-home mom. She never complete college, but the two of them are still
paying off college loans. They lost their home in the real estate downturn and
now rent. Rent costs have been increasing. They seem to live from month-to-
month and rely on gifts from parents and food kitchens. What do you do first?
a. establish an emergency fund
b. learn the details of their spending habits
c. determine what kind of home they can afford to buy using current mortgage
rates
,d. make a list of priorities they consider important Answer - Learn the details
of their spending habits - best starting point is data gathering with this couple
What type of specific information should be gathered in the planning process
regarding the client's statement of financial position
Cost or Basis
Encumbrances
Budgeting
Savings and Investment Allocations
Date Assets Were Acquired Answer - I, II, IV, V - cash flow only needed for cash
flow statement
Which of the following would be the most recommended method of
implementing a savings plan?
a. pay all your expenses first, including credit cards, then deposit the remainder
in a money market account
b. simply wait until the end of the month and see if any money is left over
c. deposit a fixed or specific amount from a paycheck into a savings or money
market account.
d. complete a one-year budget, then see if the client can save money Answer -
deposit a fixed or specific amount from a paycheck into a savings or money
market account - pay yourself first is generally the best advice to give to
succeed at savings
A client, married, has come to you for financial planning advice. He has a high-
paying occupation. His wife is a stay-at-home mom with two young children. He
has a very high risk-tolerance with adequate insurance coverage. After a review
of his financial statement, you and he find about 1 month of cash/cash
,equivalents and excessive debt. His large investment position is also highly
leveraged but doing very well. What should you suggest he do first?
a. liquidate some investments and reduce his debt
b. establish a budget and save more of the cash flow into liquid assets
c. establish an emergency fund with at least 6 months of fixed and variable
expenses available in emergency fund type assets
d. do a risk tolerance survey and review his investments Answer - establish a
budget and save more of the cash flow into liquid assets - emergency fund not
realistic investment for risk tolerance
After completing a client questionnaire including a complete financial
statement, cash flow statement, goals, needs, and priorities you have found the
following weaknesses. How would you prioritize them (first, second, etc.)
Lack of Disability Insurance
No Umbrella Coverage
No Emergency Fund
Total Monthly Debt is Greater than 40% of Gross Income Answer - IV, III, I, II -
assume the exam might consider emergency fund first, even above debt
reduction. however no money available for emergency fund so debt reduction
first
Your client, age 35, has a wife and 2 young children. Which of the following
makes the most sense for your goal?
a. establish a 6 month emergency fund in the next year from excess cash flow
b. contribute to a 529 plan at the end of the month until two children go to
college
c. make contributions to two Roth IRAs each year until retirement
, d. make contributions to two deductible IRAs each year until retirement
e. reduce consumer debt over the next year from excess cash flow Answer -
establish a 6 month emergency fund in the next year from excess cash flow -
having proper emergency fund has the highest priority
Mr. and Mrs. Delay are approaching retirement. Their statement of financial
position shows limited retirement assets. Although Mr. Delay has worked all his
life, his income has always been below the maximum Social Security threshold.
As a result, his benefits for both he and his wife will be about half the
maximum available at NRA. His pension benefits available through a prior
employer are also minimal. Since he has been working almost 40 years, he
wants to retire early, what should you do if he approached you to do a financial
plan.
a. tell him he cannot retire until at least NRA
b. do a risk tolerance survey to see if his investments could produce better
returns
c. decline him as a client
d. have the client keep a budget to determine current cash flow needs and
potential savings
e. suggest he get a better job or second job for the next few years to increase
savings and get higher SS benefits Answer - have the client keep a budget to
determine current cash flow needs and potential savings - the budget will
determine both their current situation and their potential needs
Which agencies monitor or oversee commercial banks?
FDIC
Federal Reserve
Comptroller of Currency
