Build Your Budget
Rent stays the same each month, while restaurant spending can change. Rent is this type of expense.
What is a fixed expense? Fixed expenses generally stay the same from month to month.
This fund is reserved for unexpected expenses such as an urgent car repair or a temporary loss of income.
What is an emergency fund? It helps you handle financial surprises without immediately relying on debt.
Buying a share of this investment makes you a part-owner of a company.
What is a stock? Shareholders own a small portion of the business.
Spreading money across different companies, industries, or investment types is this risk-management strategy.
What is diversification? It reduces dependence on any single investment, but it does not eliminate all risk.
This workplace retirement plan, named with a number and a letter, lets employees contribute part of their pay toward retirement.
What is a 401(k)? It is an employer-sponsored retirement savings plan.
In the 50/20/30 budgeting guideline shown in the lesson, the 30% portion is for this spending category.
What are wants? The guideline allocates 50% to needs, 20% to saving, and 30% to wants.
Automatically transferring part of each paycheck into savings before spending the rest follows this common money-management principle.
What is pay yourself first? Treat saving as a planned priority rather than whatever is left over.
Buying this investment generally means lending money to a company or government rather than becoming an owner.
What is a bond? The issuer promises payments according to the bond’s terms, though repayment is not guaranteed in every case.
An investment offers the possibility of much higher returns. In general, you should also expect more of this.
What is risk? Higher potential returns usually come with greater uncertainty and the possibility of loss.
Your employer adds money to your retirement account based on how much you contribute. This benefit is called this.
What is an employer match? The employer contributes according to the plan’s matching rules.
When building a spending budget, this amount on your paycheck is more useful than gross pay because it is what remains after taxes and other deductions.
What is net pay, or take-home pay? This is the income available to spend or save.
A savings account offers a higher interest rate than your current account. This abbreviation measures its annual yield, including the effect of compounding.
What is APY, or annual percentage yield? It helps compare the interest earned on savings accounts.
This payment distributes some of a company’s earnings to shareholders. Not every company makes one.
What is a dividend? Dividends can provide income, but companies can reduce or stop them.
You reinvest your investment earnings so those earnings can generate earnings of their own. This growth process is called this.
What is compounding? Both your original money and reinvested earnings can contribute to future growth.
You open a retirement account and deposit money, but leave it sitting as cash. To put that money into stocks or funds, you still need to take this action.
What is select and purchase investments within the account? A retirement account holds investments; opening or funding one does not always mean the money is invested.
You earn enough to cover your bills but keep running out of money. Reviewing these purchases first can reveal where optional spending is adding up.
What is discretionary spending, or spending on wants? Examples include dining out, entertainment, and unused subscriptions.
You need your saved money for tuition in three months. A savings account is generally a better fit than stocks because it avoids this risk right before the bill is due.
What is the risk of a market loss? Stocks could fall just before you need to withdraw the money.
Instead of choosing individual stocks, you buy a fund designed to track a benchmark such as the S&P 500. This is the type of fund you bought.
What is an index fund? It aims to track a specified market index and can be structured as a mutual fund or an ETF.
You invest the same dollar amount every month, buying more shares when prices are low and fewer when prices are high. This strategy has this name.
What is dollar-cost averaging? It spreads purchases over time without requiring you to predict the best buying day. It does not guarantee a profit.
“Save more” is vague. “Save $1,200 for a laptop by next June” adds these two specific details that make planning easier.
What are a target amount and a deadline? Knowing how much you need and when you need it helps you plan regular savings.
Your annual car insurance bill is predictable but does not arrive every month. To avoid a budget surprise, you should set aside money for it this often.
What is every month? Build a monthly savings amount for predictable annual or irregular bills instead of treating them as emergencies.
Your emergency savings are invested in something that takes months to sell. The fund lacks this important quality: quick access to cash.
What is liquidity? Emergency money should be accessible when an unexpected expense occurs.
An ETF can hold a basket of investments, but unlike a traditional mutual fund, its shares trade on an exchange at changing prices during this period.
What is throughout the trading day? Traditional mutual funds generally transact at a price calculated after the market closes.
Two funds track the same index and have similar performance before costs. This annual fund charge, usually expressed as a percentage, can help explain why one leaves you with less money over time.
What is the expense ratio? Ongoing fund expenses reduce the return investors keep.
You want to buy a home next year and retire decades from now. These goals should not automatically use the same investments because they have different lengths of time before withdrawals. This planning factor is called this.
What is time horizon? Near-term goals usually need greater stability, while long-term goals may allow more time to recover from market declines.