Budgeting Basics
The initial amount of money borrowed in a loan
Budget
The initial amount of money borrowed in a loan. One word.
Principal
A loan used specifically to purchase real estate and typically secured by the property itself. What is it called?
Mortgage
The ability to support oneself without relying on others for financial assistance. Two-word phrase.
Financial Independence
These are recurring costs that remain constant each month, such as rent or insurance. Give the term.
Fixed Expenses
The percentage charged on borrowed money that a lender requires the borrower to pay. What is this called?
Interest Rates
The value of ownership in an asset, for example, the portion of a house you truly own after subtracting what you owe. One-word answer.
Equity
The knowledge and skills needed to make informed and effective financial decisions. What is this called?
Financial Literacy
These costs can change from month to month; examples include food and entertainment. What are they called?
Variable Expenses
The type of interest that is calculated on both the principal and previously earned interest, which can cause savings to grow faster. Name it.
Compound Interest
A payment method where you pay to use a property or vehicle for a set period without owning it. What is this called?
Leasing
Describe in one sentence how compound interest differs from simple interest.
Compound interest earns interest on the original principal plus any interest already earned, while simple interest earns interest only on the principal.
Money set aside specifically for unexpected expenses, often recommended to cover three to six months of living costs. Name this.
Emergency Fund
When you borrow money to buy a car or house, the lender may require this percentage or amount paid up front to reduce the loan size. What is this?
Down Payment
The amount you still owe on a house is reduced when you make a larger up-front payment at purchase. Name the up-front payment term and explain in one sentence how it affects the mortgage amount.
Down Payment — A larger down payment reduces the principal borrowed and therefore lowers monthly mortgage payments and total interest paid.
If you want exponential growth of your savings over many years, which interest concept should you aim to benefit from? Give the term and a one-sentence reason.
Compound Interest — because it allows interest to be calculated on previous interest as well as the original amount, accelerating growth over time.
A specific, measurable amount you aim to save for a future purchase or situation (e.g., a new laptop or a trip). What is this called?
Savings Goals
The final expenses paid when completing a real estate purchase, including fees for services and taxes. What is the collective term?
Closing Costs
Explain why higher equity in a home can be beneficial for future financial decisions (two clear reasons
(a) You can borrow against home equity for loans (home equity loans or lines of credit).
(b) Higher equity increases your net worth and gives you more options when selling or refinancing.
Create a short example (numbers only) that shows how compound interest can grow a 10001000 investment at an interest rate of 5% for one year (show the calculation step and result).
: Start: 1000; interest for one year at 5% = 1000×0.05=50. End of year balance = 1000+50=1050