unit 3: budgeting Flashcards
budget definition:
a written cash flow plan
cash flow statement:
a summary that shows total income and spending for a given time period
envelope system:
series of envelopes that are divided into categories (food, entertainment, gas, etc.) and are used to to store cash for planned monthly expenses
impulse purchase:
an item that is bought without previous planning or consideration of the long-term effects
overdraft:
occurs when money is withdrawn from a bank account and the available balance goes below zero
reconcile:
to match your bank statement with your checkbook
zero-based budget:
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
budgeting is ____ to your success. Your income is you ____!
important; responsibility
what do millionaires not do?
- buy brand new cars
- carry debt
- buy brand named clothes
- desire instant gratification
-replace what is not broken - eat out on regular basis
4 reasons people avoid budgeting:
- straitjacket connotation
- abuse
- never worked
- fear
straitjacket connotation:
believe that a budget will constrict and keep them from doing what they want
abuse:
budget has been used by other (parents, spouse) to abuse them. Stating “It’s not in the budget!”
never-worked:
budgets are not perfect, you will make mistakes. It takes time (months) to get your budget where you want it
fear:
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
writing checks:
used for paying bills at stores or paying someone without giving cash
online bill pay:
make payments online for bills without having to write checks (quicker and more convenient)
debit card purchases:
it is recommended to select “credit” instead of “debit”
account transfers:
moving your money between accounts
ATM (automatic teller machine):
allows you to make withdrawals, deposits and transfers without entering your bank
mobile-banking:
using your bank’s smartphone app for many banking tools
why do cash flow plans not work
- people leave things out
- they over complicate their plan
- many don’t follow through with their plan
- they don’t live on it
why should you do cash flow plans
- 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
opportunity cost:
Choosing to buy one thing over another
money management:
Planning how to get the most of your money
how does personal finance help you and your family:
- 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
what is a budget:
- 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
steps in preparing a budget:
- set financial goals
- estimate your income
> monthly income - budget for unexpected expenses
> emergency fund - budget for fixed expenses
> expenses don’t change - budget for variable expenses
> vary from month to month - budget for intermittent and discretionary expenses
> don’t pay every month but are large amounts of $$
> your wants - record what you spend
> track your actual income and expenses - review spending and savings pattern
> reviewing financial progress
budget variance:
the difference between the budgeted amount and the actual amount you spend
50/20/30 rule:
50% of expenses for fixed expenses. 20% to savings, and 30% for wants
variable expenses:
vary from month to month
fixed expenses:
don’t vary from month to month
intermittent expenses:
you don’t pay for every month but are expensive
discretionary expenses:
expenses for wants
