Personal Finance Basics
What is personal finance?
The management of money by an individual or family, including budgeting, saving, and spending.
What is a budget used for?
A budget is used to manage income and expenses, helping to avoid debt and achieve financial goals.
What is a mortgage?
A loan used to finance the purchase of a home, typically paid back over 15 to 30 years.
What is one key action you can take to maintain a good credit score?
Paying your credit card bills on time.
What is a 401(k) plan?
A retirement savings plan offered by employers where contributions are made from pre-tax income.
What is the difference between a need and a want?
A need is something that is needed to survive. A want is something that an individual desires.
What are the three key components of a budget?
Income, expenses, and savings/goals.
What type of debt is incurred when borrowing money for higher education?
Student loan debt.
What impact does consistently paying bills on time have on your credit score?
It helps maintain or improve your credit score, showing lenders that you are reliable
What is an IRA, and what does it stand for?
IRA stands for Individual Retirement Account, which is a savings account with tax advantages designed for retirement.
What does personal finance involve? (Name key aspects)
Budgeting, saving, and spending monetary resources over time.
How can budgeting help prevent debt?
By allowing you to track your money and make informed financial decisions, ensuring you don’t spend more than you earn.
What is one major risk of using credit cards for everyday expenses?
The risk of accumulating high-interest debt if the balance is not paid off in full each month.
How can you get on "good" terms with the bank in order to get approved for greater loans at lower interest rates?
Pay your monthly credit card bills on time!
What is a stock?
A stock represents ownership in a company and entitles the shareholder to a portion of the company's profits.
Why is it important to start learning about personal finance at a young age?
Learning about personal finance early helps build good money habits, leading to better financial decisions and stability in adulthood.
What type of account is used for daily spending and is typically linked to debit or credit cards?
A checking account.
Give an example of good debt versus bad debt.
Good debt could be a student loan used to finance education, which can increase earning potential. Bad debt could be credit card debt used to buy luxury items that lose value and do not generate income.
How can late payments negatively affect your credit score?
Late payments can lower your credit score and make it more difficult to get loans or credit in the future.
What is the S&P 500?
The S&P 500 is an index that tracks the performance of 500 of the largest publicly traded companies in the United States.
What are some consequences of poor financial literacy?
Poor financial literacy can lead to debt, inability to manage expenses, lack of savings, and financial stress.
What is a savings account, and how does it benefit you?
A savings account offers a higher interest rate, allowing your savings to grow faster over time.
What is credit card debt, and why is it considered high-risk?
Credit card debt is money borrowed using a credit card, often with high interest rates, making it expensive if not paid off quickly.
Why is a high credit score beneficial when applying for loans?
It usually results in lower interest rates and better loan terms.
What is the main difference between an IRA and a 401k?
A Traditional IRA allows for tax-deductible contributions with taxes paid upon withdrawal, while a Roth IRA involves after-tax contributions with tax-free withdrawals in retirement.