Budgeting and Spending
What is the main purpose of creating a monthly budget?
To plan how you will use your income so your expenses do not exceed what you earn.
What is the difference between gross pay and net pay?
Gross pay is total earnings before deductions, net pay is take-home pay after deductions.
What is an emergency fund used for?
Unexpected expenses such as medical bills or car repairs.
What is debt?
Money borrowed that must be repaid, usually with interest.
What is one major benefit of renting a home?
Lower responsibility for repairs and maintenance.
Give one example of a need and one example of a want.
Need: housing or food; Want: eating out, gaming, new clothes you don’t need.
Name two types of income besides hourly or salary.
Commission, bonuses, freelance income.
Name one type of savings account and its basic purpose.
High-yield savings account, used to earn higher interest on savings.
How does a higher interest rate impact the total cost of borrowing?
It increases the total amount you pay back over time.
What is one advantage of owning a home?
Building equity over time.
If your expenses are higher than your income, what is the financial term for this situation?
A budget deficit.
How does higher education typically impact lifetime earnings?
Higher education often increases career options and potential income.
What is the main difference between simple and compound interest?
Simple interest is earned only on the principal; compound interest is earned on principal plus accumulated interest.
Give one example of a fee that might apply to a credit card or bank account.
Late fee, overdraft fee, annual fee, ATM fee.
What is an adjustable-rate mortgage?
A mortgage where the interest rate can change over time.
How do bank fees or interest on late payments impact your budget?
They increase your total spending and reduce the amount available for other expenses.
What is one post–high school option that does not require a four-year college degree?
Trade school, community college, military, apprenticeships, or certifications.
Why is saving money early beneficial when using compound interest?
Money grows more over time due to interest-on-interest.
Why is minimum monthly payment on a credit card risky?
It extends the repayment period and increases total interest paid.
Why do 30-year mortgages have lower monthly payments than 15-year mortgages?
Payments are spread over more years.
What are two common ways people adjust their budgets when costs rise?
Cutting discretionary spending or increasing income (overtime, extra job, etc.)
Explain the relationship between career choice and lifestyle.
Income from a career influences housing, transportation, savings, and overall financial stability.
If you deposit $500 at 3% interest compounded yearly, what financial concept explains why it grows more each year?
Exponential growth due to compounding.
Explain why missing payments damages your financial health.
It adds fees, raises interest costs, and lowers credit score.
What is one drawback of a long-term mortgage?
You pay more total interest over the life of the loan.