Budgeting Basics
This budgeting rule suggests allocating 50% of income to needs, 30% to wants, and 20% to savings
What is the 50/30/20 rule?
This three-digit number helps lenders assess your creditworthiness.
What is a credit score?
Interest earned on both your original deposit and previously earned interest.
What is compound interest?
The form many employees complete when starting a new job to determine tax withholding.
What is a W-4?
You unexpectedly need a $700 car repair. This fund should ideally cover it.
What is an emergency fund?
Money left after taxes and deductions are taken from your paycheck.
What is net income (take-home pay)?
Paying only this amount on a credit card keeps the account current but increases interest costs.
What is the minimum payment?
A diversified investment fund that tracks a market index like the S&P 500
What is an index fund?
This document summarizes wages and taxes withheld by an employer.
What is a W-2?
You receive a $1,000 bonus and immediately spend it all. Economists call this behavior this.
What is lifestyle inflation (or increased consumption)?
Expenses like rent and car payments that generally stay the same each month.
What are fixed expenses?
The percentage charged annually for borrowing money.
What is APR (Annual Percentage Rate)?
This retirement account often provides tax-free withdrawals in retirement.
What is a Roth IRA?
Income tax rates that increase as income rises are called this.
What is a progressive tax system?
You have a credit card charging 24% APR and a savings account earning 4%. Financially, paying down the card first usually makes more sense because of this.
What is the higher interest cost on the debt?
If you earn $4,000 monthly and spend $3,500, your monthly _____ is $500.
What is a surplus?
This ratio compares your monthly debt payments to your monthly income.
What is debt-to-income ratio?
Generally, higher potential returns come with higher _____.
What is risk?
A tax deduction reduces your taxable income, while this reduces your tax bill directly.
What is a tax credit?
A coworker offers a "guaranteed" investment returning 30% every month with no risk. This is a major _____ flag.
What is a red flag?
Experts often recommend saving this many months of expenses in an emergency fund
What is 3–6 months?
Closing old credit card accounts can sometimes lower your credit score because it affects this factor.
What is credit utilization or average account age?
Investing a fixed amount at regular intervals regardless of market conditions.
What is dollar-cost averaging?
Self-employed individuals typically pay both the employee and employer portions of this tax.
What is Social Security and Medicare tax (self-employment tax)?
You can either receive $5,000 today or $5,000 in five years. Financially, taking it today reflects this principle.
What is the time value of money?