Budget Basics & Vocabulary
The total amount of money earned on a paycheck before taxes and deductions are taken out
What is Gross Pay?
The budgeting strategy where an individual prioritizes building savings by setting aside a portion of income before paying any other expenses
What is Pay Yourself First?
The legal agreement you must sign when renting an apartment before moving in
What is a Residential Lease?
Comparing this price figure (cost per unit or ounce) at the grocery store helps shoppers find the best value
What is Unit Price?
An investment analyst with an annual gross salary of $100,000 earns this gross amount per month
What is $8,333.33? ($100,000 / 12)
Your actual "take-home pay" remaining on your paycheck after taxes are deducted
What is Net Pay?
The popular rule of thumb that allocates net income into 50% needs, 30% wants, and 20% savings
What is the 50/30/20 Budget?
Mandatory household costs like electricity, gas, heating, and water that must be budgeted alongside rent
What are Utilities?
A car lease payment is an example of this expense type, whereas gasoline costs are another expense type
What are Fixed Expenses and Variable Expenses?
Assuming a 25% tax rate on a $8,333.33 monthly gross wage, this is your monthly Net Pay
What is $6,250.00? ($8,333.33 × 0.75)
The condition that occurs when your monthly spending exceeds your monthly income
What is a Budget Deficit?
A method where cash for each expense category is placed into physical containers for the month
What is Cash Envelope Budgeting?
Housing holds this ranking among major spending categories for most American households
What is the Biggest Expense?
Between fixed and variable costs, this type tends to be harder to adjust quickly when attempting to reduce personal spending
What are Fixed Expenses?
Following a "Pay Yourself First" rule of putting 10% of net pay into savings and 10% into retirement from a $6,250 net salary, this total dollar amount is saved monthly
What is $1,250.00? ($625 + $625)
Items or services that are necessary to live and work are classified as these, while items that are nice to have are classified as these
What are Needs and Wants?
A strategy where every single dollar of income is assigned to a specific category so that income minus spending/saving equals zero
What is a Zero-Based Budget?
Living with two of these helps substantially lower your individual housing expenses
What are Roommates?
You compare four boxes of cereal: Cereal A ($6.00 for 32 oz), Cereal B ($4.20 for 16 oz), Cereal C ($3.50 for 10 oz), and Cereal D ($5.50 for 8 oz). This box offers the lowest unit price
What is Cereal A? ($0.1875/oz vs $0.2625, $0.35, and $0.6875)
If monthly rent is capped at 25% of your monthly Net Pay ($6,250), this is your monthly rent budget
What is $1,562.50? ($6,250 × 0.25)
An average metric for a city or region that helps you gauge how expensive it will be to live there
What is Cost of Living?
If you earn a gross salary of $20,000 per year and save 20% of your gross pay, this is how many years it will take to build an $8,000 emergency fund
What is 2 Years? ($20,000 × 20% = $4,000 saved per year; $8,000 / $4,000 = 2 years)
Name three distinct expenses you must budget for when moving into an apartment in addition to basic rent
What are Utilities, Renter's Insurance, and Security Deposits / Upfront Fees?
Name two fixed costs and two variable costs of car ownership
What are Car Payments & Car Insurance (Fixed) and Gas & Car Maintenance (Variable)?
If you experience a 20% pay cut from $100,000 to $80,000 annual salary, this major budget category should be reduced or eliminated first to resolve a deficit and maintain a zero-based budget
What is Discretionary Spending ("Wants" like concerts, dining out, and clothing)?