Budgeting 101
Money spent on things you need to live, such as housing, food, and transportation.
What are needs?
This is the fee you may pay for borrowing money, usually expressed as a percentage.
What is interest?
Importance: Interest is the extra money you pay when you borrow money. It can be helpful when you're borrowing responsibly, but it can become expensive when you carry debt for a long time.
Money set aside specifically for unexpected expenses.
Emergency Fund?
Importance: Cash set aside for life's unforeseeable events.
This is the portion of a company that you own when you purchase one of its shares.
What is stock?
- Owning stock means you have a small ownership stake in a company and may benefit if the company grows.
What is the tax that is taken directly out of your paycheck to help pay for government programs and services?
What is Income tax?
The principle of only spending what you can reasonably afford based on your income
What is living within your means?
Importance: Helps you stay in control of your money. When you’re not spending more than you make, you have more room to save, enjoy your money, handle unexpected expenses, and reach your financial goals.
Credit cards may offer these perks, such as cash back, travel points, or discounts, as an incentive for using the card.
What are credit card rewards and benefits?
Importance: Rewards can help you get more value from purchases you already plan to make.
This savings strategy involves setting aside small amounts of money over time for a planned future expense, such as a vacation, car insurance, or a new laptop.
What is a Sinking Fund?
It helps you prepare for known expenses without having to rely on credit cards or loans.
This type of investment holds a collection of different assets and can be bought and sold on a stock exchange
What is an ETF (exchange-traded fund)?
This is money you may receive back if you paid more in taxes throughout the year than you actually owed.
What is a Tax Return?
The type of expense that generally stays the same each month, such as rent.
Fixed expenses generally stay the same, while variable expenses can change.
Importance: Knowing the difference makes budgeting easier. Rent may stay the same each month, while food, entertainment, and gas can fluctuate.
A student has a credit card with a $1,000 limit and a $300 balance. This percentage shows how much of their available credit they are using. What is it called?
What is credit utilization?
This type of savings account typically offers a higher interest rate than a traditional savings account, helping your money grow while remaining accessible.
What is a High-Yield Savings Account (HYSA)?
Importance: A HYSA can help young adults earn more interest on money they're already saving, especially for an emergency fund or short-term goals.
This strategy involves spreading your money across different investments rather than putting it all into one.
What is diversification?
Importance: Diversification can help reduce the impact of a single investment underperforming.
Ex. Instead of investing $1,000 in one company, you could spread it across different companies or funds.
If you own a home, what tax do you typically pay to your local government based on the value of your property?
What is Property tax
Importance: Property taxes help fund local services such as schools, roads, police, and fire departments.
The percentage of the 50/30/20 rule recommended for savings.
20%
Importance: The 50/30/20 rule creates balance. It helps you cover your necessities, enjoy your money, and still build financial security for the future.
Name one factor that makes up your credit score.
What is payment history, amounts owed (credit utilization), length of credit history, credit mix, or new credit?
When prices rise over time and your money can buy less than it did before, this economic factor is at work
What is inflation?
This is the process of earning returns not only on the money you originally invested, but also on the returns that money has already generated.
What is compound growth?
Importance: Compound growth is one reason starting to invest early can be so powerful. Your money has more time to grow potentially, and those gains can generate additional gains.
What form does your employer typically send you showing your wages and taxes withheld?
What is a W-2 form
You get paid from your part-time job and immediately put $100 into savings before paying for food, entertainment, or other wants. What budgeting strategy are you using?
Pay yourself first.
This type of loan allows homeowners to borrow money using the value they have built up in their home as collateral.
What is a home equity loan?
Importance: It can provide access to money, but borrowing against your home comes with serious risk.
Saving for a spring break trip next semester is considered this type of saving, while saving for a down payment on a house 10 years from now is considered this type.
What are short-term and long-term savings?
Importance: Knowing the time frame for your goal helps you decide where to keep your money and how aggressively you need to save
The financial principle that explains why having money today can be more valuable than having the same amount of money in the future, because today's money can be saved or invested to grow.
What is the time value of money?
Importance: The time value of money is important because the earlier you put your money to work, the more time it has to grow. This is especially important for our age range because even small amounts invested early can potentially grow significantly over many years.
This tax rate helps determine how much tax you pay on additional income when you receive a raise or earn more money.
What is a marginal tax rate?
Importance: It helps you understand how a raise or higher-paying job will affect your taxes and prevents the misconception that all your income gets taxed at the higher rate