Unit Four Test Review

Question 1

Personal budget

Answer 1

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.

Question 2

Net Worth

Answer 2

Is the value of assets an individual or corporation owns minus the liabilities they owe.
Formula: Assets-Liabilities

Question 3

Net Income

Answer 3

The payment you receive minus taxes.

Question 4

Budget Deficit

Answer 4

You are spending more money in a specific area than you are allotted for (spending more money than you have).

Question 5

GDSR AND TDSR

Answer 5

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

Question 6

Emergency Fund

Answer 6

Money you have saved for emergencies.

Question 7

Income

Answer 7

How money you make.

Question 8

Expenses

Answer 8

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

Question 9

What are the two main categories of a budget?

Question 10

What is the 50/30/20 method?

Answer 10

-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.

Question 11

What is the 0-Base method?

Answer 11

-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)

Question 12

What is the cash envelope method?

Answer 12

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

Question 13

What is the traditional budgeting method ?

Answer 13

Most popular.
5 steps:
1. Evaluate your monthly net income
2. Allocate Funds to necessary fixed expenses
3. Average and allocate 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

Question 14

Which method would you use and why?

Answer 14

I would use the traditional budgeting method because it is the most simple, straightforward, and all areas I’m saving for are covered.

Question 15

For most Canadians, which budget expense category is the largest?

Answer 15

Traditional budgeting method

Question 16

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?

Answer 16

-Don’t have self control.

Question 17

What are three of the most common categories that would be included in a budget?

Question 18

What are three reasons why it is important to track your income and expenses before creating a budget?

Answer 18

-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.

Question 19

List one reason why people might struggle or fail to follow a budget?

Answer 19

You have unrealistic goals/you are stressing your income too thin.

Question 20

What is an emergency fund? Why would someone need an emergency fund?

Answer 20

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.

Question 21

What is the formula for calculating net worth?

Answer 21

Assets-liabilities=Net worth

Question 22

How often should a person calculate their net worth and when?

Answer 22

At least once annually, usually around tax season (January through April).