Budgeting Basics
What is a budget?
A plan for how you will spend your money
What is a credit score?
A number that shows how likely you are to repay borrowed money based on your credit history.
What is the difference between a checking and savings account?
A checking account is for everyday spending and paying bills, while a savings account is for saving money and earning interest
What is a financial goal?
A specific target you set for how you want to manage, save, or spend your money in the future
What does it mean to "pay more than the minimum" on a loan or credit card?
Making extra payments to reduce the principal faster, which lowers interest and shortens the time it takes to pay off debt
Name one fixed expense
Will accept various answers including: rent, car payment, insurance, a phone or internet bill
True or False: Carrying a balance improves your credit score?
False
What is an overdraft fee?
A fee charged when you spend more money than you have in your checking account
What does "pay yourself first" mean?
Immediately saving a portion of your income from each paycheck before paying other bills
What is principal?
The original amount of money borrowed or invested, not including interest
What is the difference between a want and a need?
A need is something you must have to live or function, while a want is something you’d like to have but can live without
What factor has the biggest impact on your credit score?
Payment history
Why is it important to regularly review your credit report?
To check for errors, spot identity theft, and make sure your credit history is accurate
When should you start saving?
As early as possible, even with small amounts, to take advantage of compound interest
What costs more over time: making only the minimum payment or paying extra each month?
Paying the minimum costs more in interest over time
Why is tracking spending important?
Tracking spending helps you see where your money is going so you can stay on budget, avoid overspending, and make better financial decisions
What is interest?
The cost of borrowing money—or the money you earn for saving it
What is compound interest?
Interest calculated on both the original amount and the interest already earned or owed
What is the ideal amount of money to save?
As much as you are able to. There is no "ideal" amount, small amounts grow over time
What is the avalanche method of debt repayment?
Paying off the debts with the highest interest rate first
What are SMART goals?
Specific; Measurable; Achievable; Realistic / Relevant; Time-Bound
What happens if you only make the minimum payment on a credit card?
Your balance decreases very slowly, you pay more in interest over time, and it can take years to pay off the debt
Name two ways to protect yourself from bank fraud
Using strong passwords and monitoring your accounts regularly
Name one benefit of contributing to a retirement plan early in your career.
Your money has more time to grow through compound interest, potentially leading to a larger retirement fund
What is the snowball method of debt repayment?
Paying off debts with the lowest amount owed