Budgeting Basics
What is a budget?
A plan for how to spend and save your money.
What is interest?
Money earned on savings or paid on borrowed money.
What is credit?
Borrowed money you agree to pay back, usually with interest.
What is gross income?
Total income before taxes and deductions.
What does “APR” stand for?
Annual Percentage Rate
If you earn $2,000/month and spend $1,800, how much can you save?
200$
What's the difference between a savings account and an investment?
Savings accounts are safe with low returns; investments carry more risk but higher potential returns.
What is a credit score used for?
To measure how likely you are to repay borrowed money, affects loan approvals and interest rates.
What is net income?
Income left after taxes and deductions — also called “take-home pay.”
What is risk
volatility!
Name one fixed expense and one variable expense.
Fixed: Rent. Variable: Groceries.
What does “compound interest” mean?
Interest earned on both the initial principal and on the interest already earned.
Name two things that can lower your credit score.
Late payments, high credit card balances.
Name one type of tax taken out of your paycheck.
Federal income tax (others include Social Security, Medicare).
What is a “loan”?
Money borrowed that must be paid back with interest.
What is the 50/30/20 rule?
50% needs, 30% wants, 20% savings.
What does it mean to “diversify” your investments?
Spreading money across different assets to reduce risk.
What is the difference between a credit card and a debit card?
Credit cards borrow money from a lender; debit cards use your own bank funds.
What is a W-2 form?
A form that shows how much you earned and how much tax was taken out — used to file taxes.
What is a “mutual fund”?
A pooled investment that spreads money across stocks, bonds, or other assets.
Name 3 consequences of not having a budget.
Answers Vary but probably correct :)
If you invest $100 at 5% interest compounded annually, how much will you have after 2 years?
$110.25
If your credit card has a $1,000 balance and 18% annual interest, what is the interest after one month?
$15 (approx., using 1.5% monthly interest)
What is the difference between hourly and salaried income?
Hourly income is based on hours worked; salaried income is a fixed yearly amount regardless of hours.
Define “inflation” and explain one way it affects your money.
Inflation is the rise in prices over time, which decreases your purchasing power (your money buys less).