Budgets
What is a budget and how is it utilized?
A budget is an itemized summary of expected income and expenses for a defined period, typically one month, used to track spending and plan for saving.
What is the first step in creating a monthly budget?
The first step is gathering financial statements, including bank statements and bills.
What is a 'saver' in terms of money personality?
A saver is someone who prefers to save money rather than spend it, often seeking deals to minimize expenses.
What is one common strategy for ensuring expenses do not exceed income?
Creating a detailed budget that itemizes all income and expenses.
What is personal financial planning?
It is the process of creating a plan to spend and save money, ensuring that future needs and wants can be met.
How does a budget show the relationship between income and expenses?
A budget compares the total income brought in against the total expenses incurred, showing if spending is within limits.
What should you record as your total income?
Use take-home pay or net income, including all sources of income for the month.
Describe a 'spender' and their typical habits.
A spender enjoys spending money on themselves or others and believes money is meant for enjoyment, often without concern for saving.
How can separating needs from wants help in budgeting?
It allows individuals to focus on essential expenses first, ensuring financial stability before spending on non-essentials.
What is the first step in creating a financial plan?
Determining the current financial situation, including income, expenses, and net worth.
Why is it important to track spending habits in a budget?
Tracking spending habits helps identify areas for improvement, allows for better financial planning, and supports saving goals
What are fixed expenses? Give two examples.
Fixed expenses are regular payments that do not change, such as mortgage or car payments.
What characterizes a 'risk taker' regarding financial decisions?
A risk taker enjoys investing in high-risk ventures, accepting the potential for significant loss or gain.
Why is it important to create an emergency fund?
An emergency fund provides financial security in case of unexpected expenses, such as medical emergencies or job loss.
Define net worth and how it is calculated.
Net worth is the difference between total assets and total liabilities; it shows overall financial health.
How can balancing a budget lead to more savings?
Balancing a budget means spending less than the income, allowing leftover funds to be allocated to savings or debt repayment.
How do you determine whether your expenses exceed your income?
By totaling all income and expenses; if total expenses are greater, adjustments are needed.
Who is a 'security seeker' and what do they prioritize financially?
A security seeker plans for future needs, prioritizing safety in investments and having a solid financial plan.
What is the 50/30/20 rule?
This rule suggests allocating 50% of income to necessities, 30% to wants, and 20% to savings.
What are SMART goals, and why are they important?
SMART goals are Specific, Measurable, Attainable, Realistic, and Time-based; they provide a clear structure for achieving financial objectives.
What are two types of expenses, and how are they different?
Fixed expenses (like rent) remain constant each month, while variable expenses (like dining out) can fluctuate.
What adjustments can you make if your expenses are greater than your income?
Adjust variable (flexible) expenses first, such as reducing dining out or entertainment costs.
Explain the 'flyer' personality and their attitude towards money.
A flyer does not see money as essential, prioritizing relationships over financial concerns and often lacking a budget.
Discuss how reallocating resources can assist in achieving financial goals.
By adjusting where money is spent, individuals can free up funds to save for specific goals or pay off debts more quickly.
How should a financial plan be reviewed and revised over time?
Regular reviews help gauge progress, allowing for adjustments based on changing circumstances or unexpected expenses.