A client's cash flow analysis reveals annual income of $90,000 from employment and $5,000 from investments. Annual expenditures include $48,000 for living expenses, $18,000 for income taxes, and $6,000 for debt payments (principal and interest). They also make annual RRSP contributions of $5,000. What is their discretionary cash flow before considering RRSP contributions?

Question: A client's cash flow analysis reveals annual income of $90,000 from employment and $5,000 from investments. Annual expenditures include $48,000 for living expenses, $18,000 for income taxes, and $6,000 for debt payments (principal and interest). They also make annual RRSP contributions of $5,000. What is their discretionary cash flow before considering RRSP contributions?

Answer options:

• $18,000
• $15,000 ✅ $23,000
• $12,000

Correct answer: $23,000

Explanation: Total income = $90,000 + $5,000 = $95,000. Non-discretionary expenses typically include living expenses, income taxes, and debt payments. Non-discretionary expenses = $48,000 (living) + $18,000 (taxes) + $6,000 (debt) = $72,000. Discretionary cash flow = Total Income - Non-discretionary expenses = $95,000 - $72,000 = $23,000. RRSP contributions are often considered a discretionary use of surplus cash flow, not an essential expense for this calculation.