Budgeting
What is the purpose of a budget?
The purpose of a budget is to track and plan income and expenses, ensuring that you live within your means and manage your money effectively.
What is a credit score?
A credit score is a numerical representation of a person's creditworthiness, ranging from 300 to 850, based on their credit history and financial behaviors.
What is a stock?
A stock represents ownership in a company, and shareholders can earn a portion of the company's profits through dividends or stock value appreciation.
What is a W-2 form used for?
A W-2 form is used by employers to report an employee's annual wages and the taxes withheld from their paycheck to the IRS.
What is the definition of "liquid assets"?
Liquid assets are assets that can be quickly converted into cash with little or no loss in value, such as savings accounts, stocks, and bonds.
What is a fixed expense?
A fixed expense is a regular, recurring payment that doesn't change from month to month, such as rent or car payments.
What is the difference between a credit card and a debit card?
A credit card allows you to borrow money up to a certain limit to make purchases and pay it back later, while a debit card directly withdraws money from your checking account.
What does "diversification" mean in investing?
Diversification is the strategy of spreading investments across different assets (stocks, bonds, real estate) to reduce the risk of losing all money if one investment fails.
What is the difference between a tax deduction and a tax credit?
A tax deduction reduces the amount of income that is subject to tax, while a tax credit directly reduces the amount of tax owed.
What does "interest" refer to in finance?
Interest is the cost of borrowing money, usually expressed as a percentage of the loan amount, or the return earned on invested money.
Name three types of income.
Salary, wages, rental income other answers could include dividends, interest income, or business income.
What does APR stand for in reference to credit cards?
APR stands for Annual Percentage Rate, which is the interest rate charged on outstanding balances on credit cards and loans.
What is the difference between a Roth IRA and a Traditional IRA?
A Roth IRA allows for tax-free withdrawals in retirement, as contributions are made with after-tax dollars. A Traditional IRA offers tax-deferred growth, meaning taxes are paid when withdrawals are made in retirement.
What is a 401(k)?
A 401(k) is an employer-sponsored retirement savings plan that allows employees to contribute a portion of their salary before taxes, with potential employer matching contributions.
What is the "time value of money"?
The time value of money is the concept that money available now is worth more than the same amount in the future due to its potential earning capacity.
What is the difference between gross income and net income?
Gross income is the total earnings before taxes and deductions, while net income is the amount you take home after taxes and deductions.
What is the debt snowball method for paying off debt?
The debt snowball method involves paying off debts from the smallest balance to the largest, gaining momentum as each smaller debt is paid off.
What is an index fund?
An index fund is a type of mutual fund or ETF that aims to replicate the performance of a specific market index, like the S&P 500.
What are the types of taxes deducted from an employee’s paycheck?
The types of taxes typically deducted include federal income tax, state income tax, Social Security tax, and Medicare tax.
What is "inflation"?
Inflation is the rate at which the general level of prices for goods and services rises, eroding purchasing power.
What is an emergency fund, and how much should you aim to save?
An emergency fund is a savings reserve for unexpected expenses like medical bills or job loss. You should aim to save 3 to 6 months' worth of living expenses.
What is the "credit utilization ratio," and why is it important?
The credit utilization ratio is the percentage of available credit you are using. It is important because a high ratio can negatively impact your credit score, while a lower ratio is seen as better by lenders.
What is the risk of investing in individual stocks compared to bonds?
Investing in individual stocks carries higher risk due to price volatility, whereas bonds are generally considered safer investments because they provide steady returns and have lower risk.
How does progressive taxation work?
Progressive taxation means that as income increases, the tax rate also increases. People with higher incomes are taxed at higher rates, while those with lower incomes are taxed at lower rates.
What is "compound interest"?
Compound interest is the interest calculated on both the initial principal and the accumulated interest from previous periods.