Budgeting Basics
What is the purpose of a budget?
The purpose of a budget is to plan and track income and expenses.
What is the benefit of starting to save money at a young age?
Starting to save money at a young age allows for a longer time horizon for investments to grow through compound interest.
What is the main function of a bank?
The main function of a bank is to provide financial services, such as holding deposits, offering loans, and facilitating transactions.
What is the purpose of comparison shopping?
The purpose of comparison shopping is to evaluate different products or services to find the best quality and value for the price.
What is the difference between a need and a want?
A need is something necessary for survival, such as food, shelter, or clothing. A want is something desired but not essential.
Name two categories typically found in a budget.
Examples of categories in a budget can include housing, transportation, groceries, entertainment, and savings.
What is the difference between a savings account and a checking account?
A savings account is designed for accumulating and earning interest on money, while a checking account is used for day-to-day transactions and often provides a debit card for easy access to funds.
Explain the concept of interest when borrowing money.
Interest is the additional cost charged by lenders for borrowing money. It is a percentage of the amount borrowed and is added to the total repayment amount.
Name two consumer protection laws.
Examples of consumer protection laws include the Fair Credit Reporting Act (FCRA) and the Consumer Product Safety Act (CPSA).
How can you avoid impulse buying?
Strategies for avoiding impulse buying include making a shopping list, waiting 24 hours before making a purchase, and avoiding shopping when feeling emotional.
Explain the difference between fixed and variable expenses.
Fixed expenses are regular payments that remain the same each month, such as rent or mortgage payments. Variable expenses can change from month to month, like utility bills or entertainment expenses.
Explain compound interest.
Compound interest is the interest earned not only on the initial amount deposited but also on the accumulated interest over time.
What is a credit score, and why is it important?
A credit score is a numerical representation of an individual's creditworthiness. It is important because it affects the ability to obtain loans and credit cards, as well as the interest rates offered.
What are some red flags to watch out for when shopping online?
Red flags when shopping online include suspicious websites, unsecured payment options, and deals that seem too good to be true.
Explain the concept of living within your means.
Living within your means means spending less than or equal to the amount of income you earn, avoiding excessive debt and financial stress.
What is the 50/30/20 rule in budgeting?
The 50/30/20 rule suggests allocating 50% of income to needs (e.g., housing, groceries), 30% to wants (e.g., entertainment, dining out), and 20% to savings or debt repayment.
Name three different types of investment options.
Examples of investment options include stocks, bonds, mutual funds, and real estate.
Name two types of credit cards.
Examples of credit cards include secured credit cards, which require a cash deposit as collateral, and rewards credit cards, which offer benefits such as cashback or travel rewards.
Explain the difference between a warranty and a guarantee.
A warranty is a promise made by a manufacturer to repair or replace a product within a specified period, while a guarantee is a commitment to customer satisfaction or money-back if the product or service does not meet expectations.
Name three strategies for managing money effectively.
Examples of strategies for managing money effectively include creating a budget, saving regularly, and avoiding unnecessary debt.
Give an example of an opportunity cost when budgeting.
An opportunity cost of budgeting could be choosing to save money for a future goal rather than spending it on immediate wants or desires. For example, saving money each month for a new car instead of spending today on concert tickets.
What is the general rule of thumb for emergency savings?
It is often recommended to have three to six months' worth of living expenses saved in an emergency fund.
What is a loan and how does it work?
A loan is a sum of money borrowed from a lender with the expectation of repayment over time, often with interest. It is typically repaid in regular installments.
What are the advantages and disadvantages of buying in bulk?
Advantages of buying in bulk include potential cost savings, while disadvantages can include the need for storage space and the risk of wasting unused items.
What is the importance of creating an emergency fund?
An emergency fund provides a financial safety net for unexpected expenses or income disruptions, helping individuals avoid debt and maintain financial stability.