Budgeting & Saving
What is the difference between gross income and net income?
Gross income is earnings before taxes and deductions; net income is take-home pay after deductions.
What does the acronym 401(k) refer to in personal finance?
An employer-sponsored retirement savings plan.
What is the term for a portion of a company's profits distributed to its shareholders?
What is a dividend?
This number measures a borrower's creditworthiness and usually ranges from 300 to 850.
What is credit score?
You landed a job paying $50,000 a year, but your paycheck looks surprisingly light. That initial total before taxes and deductions take a bite out of it is known by this word.
What is gross (income)?
You earn $2,500 per month after taxes. Using the 50/30/20 budgeting rule, how much should you allocate toward savings and debt repayment?
$500.
What is the main difference between a traditional IRA and a Roth IRA?
Traditional IRA contributions may be tax-deductible, with withdrawals generally taxed later. Roth IRA contributions are made with after-tax money, and qualified withdrawals are tax-free.
What is the term for spreading your investments across different companies, industries, and asset classes to reduce exposure to any single investment?
Diversification.
This factor makes up the largest portion (35%) of your standard FICO credit score calculation.
What is payment history?
The fixed amount you must pay out-of-pocket for insured losses before your insurance coverage kicks in.
What is a deductible?
What is the financial term for gradually increasing your spending as your income increases, often preventing you from building wealth?
Lifestyle inflation (or lifestyle creep).
Your employer offers a 100% match on the first 4% of your salary that you contribute to your 401(k). If you earn $50,000 annually and contribute 4%, how much does your employer contribute annually?
$2,000.
You buy a stock for $40 and sell it for $50. Ignoring fees and taxes, what is your percentage return?
25%.
If you have a $10,000 credit card limit and carry a $9,000 balance, credit bureaus will flag you as risky because this percentage ratio is way too high.
What is credit utilization? (90% in this case)
Employers have until January 31st to send you this tax form, which acts as the official receipt of your annual wages and all the tax money withheld from you.
What is a W-2?
You have $4,000 in savings and monthly essential expenses of $1,600. If you lose your job, how many months can your savings cover your essential expenses?
2.5 months.
Two friends each invest $5,000 annually and earn the same average annual return. One starts investing at 22 and stops at 32; the other starts at 32 and continues until 65. Who could have more money at 65, and what financial concept explains this?
The first friend could have more because of compound growth over a longer period.
Two index funds track the same market index and have identical performance before fees. Fund A charges a 0.05% expense ratio, while Fund B charges 1%. Why might Fund A be the better long-term investment?
Fund A has lower annual fees, meaning more of your money remains invested and compounds over time.
Checking your own credit report is a "soft pull" that leaves no trace, but applying for a new credit card triggers this type of credit check, dropping your score by a few points.
What is a hard inquiry?
A fraudulent request for personal details or login credentials via fake emails or websites is known as this.
What is phishing?
You have $3,000 in credit card debt at 24% APR and $5,000 in student loans at 5% interest. You have an extra $500 per month to put toward debt. Assuming minimum payments are covered, which debt should you prioritize, and why?
The credit card debt, using the debt avalanche method, because it carries the higher interest rate and costs more to maintain.
You have $80,000 in a retirement account earning an average annual return of 8%. Using the Rule of 72, approximately how long will it take for your investment to reach $160,000?
9 years. (72 รท 8 = 9.)
An investor buys stocks using borrowed money through a margin account. Their portfolio value falls significantly, and their account equity drops below the brokerage's required minimum. What is this situation called?
A margin call.
If there is an error on your credit report, you may have to file this formal challenge with the bureau.
What is a dispute?
Taking the standard deduction prevents taxpayers from using this alternative method on Schedule A.
What is itemized deductions?