unit 3: budgeting

Question 1

budget definition:

Answer 1

a written cash flow plan

Question 2

cash flow statement:

Answer 2

a summary that shows total income and spending for a given time period

Question 3

envelope system:

Answer 3

series of envelopes that are divided into categories (food, entertainment, gas, etc.) and are used to to store cash for planned monthly expenses

Question 4

impulse purchase:

Answer 4

an item that is bought without previous planning or consideration of the long-term effects

Question 5

overdraft:

Answer 5

occurs when money is withdrawn from a bank account and the available balance goes below zero

Question 6

reconcile:

Answer 6

to match your bank statement with your checkbook

Question 7

zero-based budget:

Answer 7

a cash flow plan that assigns an expense to every dollar of your income, where in the total income minus the total income minus total expenses equal zero

Question 8

budgeting is ____ to your success. Your income is you ____!

Answer 8

important; responsibility

Question 9

what do millionaires not do?

Answer 9

• buy brand new cars
• carry debt
• buy brand named clothes
• desire instant gratification
  -replace what is not broken
• eat out on regular basis

Question 10

4 reasons people avoid budgeting:

Answer 10

1. straitjacket connotation
2. abuse
3. never worked
4. fear

Question 11

straitjacket connotation:

Answer 11

believe that a budget will constrict and keep them from doing what they want

Question 12

abuse:

Answer 12

budget has been used by other (parents, spouse) to abuse them. Stating “It’s not in the budget!”

Question 13

never-worked:

Answer 13

budgets are not perfect, you will make mistakes. It takes time (months) to get your budget where you want it

Question 14

fear:

Answer 14

some people are afraid to look at their finances, because they know what they will find. Ignoring financial distress only allows the problem to get bigger

Question 15

writing checks:

Answer 15

used for paying bills at stores or paying someone without giving cash

Question 16

online bill pay:

Answer 16

make payments online for bills without having to write checks (quicker and more convenient)

Question 17

debit card purchases:

Answer 17

it is recommended to select “credit” instead of “debit”

Question 18

account transfers:

Answer 18

moving your money between accounts

Question 19

ATM (automatic teller machine):

Answer 19

allows you to make withdrawals, deposits and transfers without entering your bank

Question 20

mobile-banking:

Answer 20

using your bank’s smartphone app for many banking tools

Question 21

why do cash flow plans not work

Answer 21

• people leave things out
• they over complicate their plan
• many don’t follow through with their plan
• they don’t live on it

Question 22

why should you do cash flow plans

Answer 22

• removes the “management by crisis” from your finances
• money affects relationships
• don’t have to worry about paying for groceries and not being able to pay for needs
• Will show if you are overspending in a certain area

Question 23

opportunity cost:

Answer 23

Choosing to buy one thing over another

Question 24

money management:

Answer 24

Planning how to get the most of your money

Question 25

how does personal finance help you and your family:

Answer 25

- determine what you own and what you owe - measures your progress towards your financial goals - track your financial activities - organize information that you can use when you file your tax return or apply for credit card

Question 26

what is a budget:

Answer 26

- a plan for managing your money during a given period of time - seeing all of your options and making smarter choices to get things you really want

Question 27

steps in preparing a budget:

Answer 27

1. set financial goals 2. estimate your income > monthly income 3. budget for unexpected expenses > emergency fund 4. budget for fixed expenses > expenses don't change 5. budget for variable expenses > vary from month to month 6. budget for intermittent and discretionary expenses > don't pay every month but are large amounts of $$ > your wants 7. record what you spend > track your actual income and expenses 8. review spending and savings pattern > reviewing financial progress

Question 28

budget variance:

Answer 28

the difference between the budgeted amount and the actual amount you spend

Question 29

50/20/30 rule:

Answer 29

50% of expenses for fixed expenses. 20% to savings, and 30% for wants

Question 30

variable expenses:

Answer 30

vary from month to month

Question 31

fixed expenses:

Answer 31

don't vary from month to month

Question 32

intermittent expenses:

Answer 32

you don't pay for every month but are expensive

Question 33

discretionary expenses:

Answer 33

expenses for wants