Unit Four Test Review Flashcards
Personal budget
Is a way to balance income, expenses and financial goals for a specific length f time. To have a budget means to have a plan for your money.
Net Worth
Is the value of assets an individual or corporation owns minus the liabilities they owe.
Formula: Assets-Liabilities
Net Income
The payment you receive minus taxes.
Budget Deficit
You are spending more money in a specific area than you are allotted for (spending more money than you have).
GDSR AND TDSR
GDSR- Is the percentage of the total annual mortgage
Principle+Interest+Taxes+Utilities/Gross Annual Income
TDSR- Is the percentage of gross annual income required to cover all other debts and loans in addition to the cost of servicing the property and the mortgage.
GDSR+other dept/Gross Annual Income
Emergency Fund
Money you have saved for emergencies.
Income
How money you make.
Expenses
Fixed- Are thing that you have to pay every month and they don’t usually change in value.
Ex)Phone bill, car payment, mortgage payment, etc.
Variable- Are things you have to pay every month, however, the amount you pay may change in value from month to month.
Ex)Gas, groceries, dining out
What are the two main categories of a budget?
Income and expenses
What is the 50/30/20 method?
-You spend 50% of your monthly income on necessities and essential expenses like bills, payments,, groceries, etc.
-Then you use 30% of your monthly income for wants and money to keep in your checking account.
-The last 20% you use to save and pay of debts.
What is the 0-Base method?
-At the beginning of every new period (every month) you start from scratch and design your budget to everything you need to spend money on that month. (More common to be used as a business model rather than a personal budget)
What is the cash envelope method?
step 1: Add up your monthly income
-Pay checks
-Investment incomes
-Earnings from a side nustle
-Government benefits
step 2: set budget categories
-Groceries
-Transportation
-Clothing
-Entertainment
step 3: Assign budget amounts to each envelope
step 4: spend the cash in each envelope
What is the traditional budgeting method ?
Most popular.
5 steps:
1. Evaluate your monthly net income
2. Assign to necessary fixed expenses
3. Average and assign funds to variable expenses
4. Set the amount you want to save in a savings account, TFSA, RRSP, FHSA, etc.
5. set money aside for extra spending cash
Which method would you use and why?
I would use the traditional budgeting method because it is the most simple, straightforward, and all areas I’m saving for are covered.
For most Canadians, which budget expense category is the largest?
Housing
Surveys show that most Canadians think budgeting is important but they do not budget. What is the reason why someone might not have a budget?
-Don’t have self control.
What are three of the most common categories that would be included in a budget?
Housing
Transportation
Car
What are three reasons why it is important to track your income and expenses before creating a budget?
-To stick with your budget and follow it.
-Spot areas where you can cut spending.
-Avoid debt by not spending money you do not have.
List one reason why people might struggle or fail to follow a budget?
You have unrealistic goals/you are stressing your income too thin.
What is an emergency fund? Why would someone need an emergency fund?
An emergency fund is money set aside for an emergency (car, home, medical bills). Everyone should have an emergency fund to cover for life’s unexpected events.
What is the formula for calculating net worth?
Assets-liabilities=Net worth
How often should a person calculate their net worth and when?
At least once annually, usually around tax season (January through April).
