BUDGET BASICS
What is a budget?
A plan for how income will be used.
What is income?
Money received.
What is an expense?
A cost paid for goods or services.
What is a consumer?
A person who purchases goods or services.
What is an emergency fund?
Money set aside for unexpected expenses.
What is the basic formula used when creating a budget?
Income − Expenses = Money Left Over.
What is gross income?
Total money earned before deductions.
What is a fixed expense?
An expense that generally stays the same from month to month.
What is one thing a smart consumer should do before making a major purchase?
Compare prices, quality, alternatives, reviews, and total costs.
Give one example of an unexpected expense that an emergency fund could help pay for.
A car repair, medical bill, broken appliance, or other unexpected cost.
What is the difference between a need and a want?
A need is necessary for basic living or responsibilities; a want improves life but is not essential.
What is net income?
Money received after deductions such as taxes.
What is a variable expense?
An expense that can change from month to month.
What is opportunity cost?
The value of the next best alternative given up.
You want to save $600 in six months. How much should you save each month?
$100 per month.
If someone earns $3,000 and spends $2,500, how much money do they have left?
$500
A worker earns $2,500 before taxes and receives $2,100 after deductions. Which amount is the worker's net income?
$2,100.
Is rent usually a fixed or variable expense?
Fixed expense.
An advertisement says a $100 jacket is now 50% off. What is the sale price?
$50.
Why is saving money important?
It helps people prepare for emergencies and reach short-term and long-term financial goals.
A student earns $2,800 in net income each month. Their expenses total $3,050, including $450 in wants. What is the best first step to fix the budget?
Reduce unnecessary wants/expenses to eliminate the $250 deficit.
A worker earns $3,200 in gross income but receives only $2,600 in net income. Why should the worker use $2,600 rather than $3,200 when creating a monthly spending plan?
Net income is the money actually available after deductions.
Give one example of a variable expense and explain why it is variable.
Groceries, gas, or entertainment because the amount spent can change from month to month.
Why should consumers be careful when they see something advertised as "50% off"?
A discount does not automatically mean you are saving money. The purchase may still be unnecessary, or another product may be a better value.
A person has $500 available and can either spend it on a new phone or put it toward an emergency fund. They choose the phone. What is the opportunity cost of that decision? ?
The value of the emergency savings they gave up by choosing the phone.