Budget Basics
What is the purpose of a budget?
To plan how you will spend and save your money and to avoid overspending.
What is a savings account used for?
To safely store money and earn interest while saving for future goals.
What is a credit score?
A number that shows how likely you are to repay debt, based on your credit history.
What is the difference between a 'need' and a 'want'?
A need is essential for survival (food, shelter, etc.); a want is something extra (video games, designer clothes, etc.).
Define "income".
Money you earn from working, investing, or other sources.
Name two common expenses found in a budget.
Rent, groceries, utilities, transportation, insurance, etc.
True or false: SAvingn $5 a day can add up to over $1800 in one year.
True ($5 x 365 =$1,825.00)
What happens if you only make minimum payments on your credit card?
You will pay more interest over time and stay in debt longer.
How can using a shopping list help you spend wisely?
It helps you avoid impulse buys and stay focused on necessities.
What is "interest" in financial terms?
Money earned on savings or paid on borrowed money.
What is the term for money left over after paying all expenses?
Disposable income / surplus / net
What is an emergency fund and why is it important?
Money set aside for unexpected expenses like medical bills, car repairs, or job loss.
Name one way to build good credit.
Pay bills on time, use credit responsibly, keep balances low, etc.
What is 'impulse buying' and how can you avoid it?
Buying something without planning; you can avoid it by making a list, setting a budget, and waiting 24 hours before buying.
Define "principal" in relation to a loan.
The original amount of money borrowed before interest.
Fixed vs. Variable expenses: give one example of each.
Fixed: rent or car payment
Variable: groceries or entertainment
What is the recommended percentage of your income that you should you plan to save?
20% (following the 50/30/20 rule)
What does APR stand for?
Annual Percentage Rate (the yearly cost of borrowing money)
Name two ways to compare prices when shopping.
Check different stores, use price comparison apps, look for sales or coupons, etc.
What does "budget deficient" mean?
When you spend more money than you earn.
If your income is $2000 per month and expenses are $1800 per month - what percentage of your income should you be saving?
10%
If you want to buy a $1200 laptop in 6 months, how much must you save each month?
$200 per month ($1200 / 6 =$200.00)
How does having a high debt-to-income ratio affect your credit worthiness?
It makes you look risky to lenders and can lower your credit score.
Explain the 24 hour rule when making large purchases.
Wait 24 hours before buying something expensive to make sure you really need or want it.
What is "compound interest" and why is it powerful?
Interest earned on both the initial principal and the interest that has been added over time - helps savings grow faster.