Future Business Leaders of America (FBLA) Business Calculations Practice Test

What is one reason people may choose to finance a large purchase instead of paying cash?

1. To avoid interest charges entirely

2. To keep cash flow available for other expenses

3. To build a high credit score

4. To clarify unexpected costs

The correct answer is: To keep cash flow available for other expenses

Choosing to finance a large purchase instead of paying cash allows individuals to maintain liquidity, meaning they can keep cash readily available for other expenses that may arise. This approach can be particularly beneficial in managing day-to-day living costs, emergency funds, or investing in opportunities that might yield a higher return than the interest incurred from financing the purchase. By spreading the cost of the purchase over time through financing, individuals can avoid depleting their cash reserves all at once, thereby ensuring they have funds available for unforeseen expenses or urgent needs that could arise later. This strategy is common in personal finance, where managing cash flow effectively can lead to better financial stability and flexibility.