Unit 5 Budgeting Econ Test

On average a home-owner will pay ___ a month on utilities than someone who is renting an apartment.

$160

The US Department of Agriculture (USDA) recommends an individual budget between

$275 and $400 for food per month depending on your age and sex.

The average American family spends _______ a year dining out

$3,500

The average price of a new car is

$47,000

How much does a family of four spend on food per month on average?

$900

The average annual income to be able to budget to feed a family of four is _________ a year.

$95,000

What percentage does a car typically depreciate the moment you drive it off the lot?

10%

Your down payment on the house should be ___ of it's overall cost.

20%

How much does a car typically depreciate in the first five years?

63%

How does a zero-based budget work?

A zero-based budget requires you to anticipate all of your upcoming expenses so that you can allot your income to the appropriate expenses, including saving. Any remaining income can be assigned to a 'savings expense.'

What should you do after paying yourself first?

After paying yourself first, you should pay your bills, then use the rest of the money however you please.

What factors influence the amount a family spends on food per month?

Age and sex of family members

"I've heard that there are so many amazing things to do in Boston - from theater shows to shopping to trendy gyms...I NEED to go to them all!"

Be sure to prioritize your needs (rent, utilities, savings, etc.) over your wants (theater shows, shopping, trendy gyms). Use the 50/20/30 method: 50% of your income should go to your needs, 20% should go to savings, and 30% should go to your wants. This method will allow you to fulfill your needs as well as allow you to enjoy your wants.

What is a recommended age for a car to purchase in terms of depreciation?

Buy a car that is 5 years old and has depreciated in value.

How can you save money while shopping for food by choosing the right type of produce?

Buy whole produce rather than pre-cut produce. It is usually less expensive, keeps longer, and doesn't create as much waste from packaging.

Give examples of Whammy expenses.

Car getting totaled, roof needing re-shingling, unexpected high federal taxes.

31. "I've had a few people tell me that there is plenty of public transportation in Boston, but I've always had a car and want my own in Boston too so that I can have more flexibility."

Cars are very expensive: interest on your loan, maintenance, and repairs. You will also have to pay for gas and parking. You would save a lot of money using public transportation instead.

"One of the things I'm looking forward to is all the restaurants in Boston! I'm such a foodie, and I can't wait to start trying different cuisines and posting more food pictures on social media!"

Eating out is fine as long as you do it in moderation. Eating out too often will be very expensive. Prioritize eating at home as much as you can and only eat at restaurants once or twice a month

What are Whammy expenses?

Emergency-type expenses that can occur unexpectedly.

What are nonrecurring expenses?

Expenses that are not as predictable as fixed expenses regarding their dates or amounts, but reliably happen throughout the month.

What are recurring expenses?

Expenses that happen once or a couple of times a year, which can be costly if not accounted for. Examples include water bills, car registration fees, and Amazon Prime membership.

What are maintenance fees for a car?

Fees paid to keep the car running properly, including oil changes, tire rotation, and changing fluids and filters.

Types of Expenses

Fixed Recurring Nonrecurring Whammy

Examples of nonrecurring expenses

Groceries, gasoline, eating out, and Target runs.

How can you save money on dining out by having treats?

Have low-cost treats at home

What is a zero-based budget?

In a zero-based budget, every single dollar of your income is assigned to a specific expense, leaving you with a balance of $0.

What is the concept of 'Pay Yourself First'?

In the 'Pay Yourself First' method, the first 'bill' you pay every month is to your savings account.

What is the 50/20/30 budget rule?

In the 50/20/30 budget rule, 50% of your net income should go to your needs, 20% should go to savings, and 30% should go to your wants.

What is the Envelope Budgeting method?

In the envelope budget, you allocate specific amounts of money into envelopes for different budget categories. Once the funds in an envelope are used up, you cannot spend more in that category until the next month.

financial triple threat

Interest Maintenance Depreciation

What is a tip for saving money while shopping for food by reducing distractions?

Listen to up-beat music to help you not get distracted by items in the store.

30. "I'm really looking forward to living on my own - I finally won't have to share any living space with anyone!"

Living on your own sounds great but it can be costly. If you live alone that means you would have to pay all housing expenses (rent and utilities) on your own. Getting a roommate(s) allows you to share the expenses with others and this lessens the costs.

What is a strategy for saving money while shopping for food by planning ahead?

Make a list before shopping and stick to the list.

What is a helpful option for saving money on dining out when you need convenience?

Make large batches of meals and freeze them for quick meals

What financial rule of thumb should you consider when making a car purchase?

Make sure you can save an amount equal to your monthly car payment, otherwise you probably can't afford your car.

What is one way to save money on dining out by spending quality time?

Meet at the park, have a potluck at your house

Examples of fixed expenses

Mortgage, phone bill, rent, car payments.

application deposit

Not to be confused with a security deposit, this is also known as a "good faith deposit" or a "holding deposit." If you're interested in renting a particular apartment, the landlord or broker may ask you to put down an application deposit of several hundred dollars. This reserves the unit for you until you're ready to pay the security deposit and sign the lease.

What are the options for remaining funds in the Envelope Budget?

Options for remaining funds in the Envelope Budget include: rolling over the funds to the same envelope, transferring them to a different envelope, or putting them into savings for future use.

What strategy helps in avoiding wasting money on dining out by planning easy meals?

Outsourced meal planning - plan easy meal prep dinners at home

List one pro and one con of being a freelancer or independent contractor in the gig economy.

Pro: Since you're self-employed you get to make your own schedule. Con: you get no benefits from a company and your employment is not stable.

Why is it important to budget for recurring expenses?

Recurring expenses, though infrequent, can be significant when they occur. Failing to include them in your budget can lead to financial problems. Examples include water bills, car registration fees, and Amazon Prime membership.

What is one way to financially prepare for a car purchase?

Save up enough money to pay for your car in full.

Explain how setting a financial goal(s) can help you create a budget.

Setting financial goals can help you know what to prioritize when creating a budget. Knowing how much you need to save allows you to budget accordingly.

Give examples of car maintenance tasks.

Tasks like oil changes, tire rotation, and changing fluids and filters.

Budgeting Strategies

The 50/20/30 Budget Pay Yourself First Zero-Based Budget Envelope Budget

Why is the 50/20/30 budget rule important?

The 50/20/30 budget rule recommends a specific balance for your spending on wants and needs. It also emphasizes the importance of setting money aside for later.

Interest

The additional money you pay on the loan that you took out to buy your car.

What is typically included in the rental application fee?

The application fee is usually submitted along with the rental application

What is the purpose of a zero-based budget?

The purpose of a zero-based budget is to ensure that you have a plan for each dollar of your income and to prevent impulse purchases.

How can you save money on dining out by comparing costs?

The thrill of saving money with restaurant offers - compare the cost to cooking at home

What are Fixed expe

They are standard expenses that happen every month, on a certain day, and for a certain amount. Your mortgage, cell phone bill, car payment, gym membership, utilities, and Netflix are all fixed expenses.

What is the purpose of an application fee?

To cover the cost of running a credit and background check on the prospective tenant

How can you save money while shopping for food by reducing impulse purchases?

To shop quicker and purchase un-needed items, use a smaller cart.

How can unit pricing help you save money on groceries? Describe one challenge you may face when calculating the unit price of an item in the store.

Unit pricing allows you to compare prices of similar items by weight or volume. This can be challenging since calculating the unit price involves math and that can be time-consuming or hard.

How can you save money while shopping for food by comparing prices?

Use unit pricing to compare prices of similar items by looking at the price per ounce, liter, or other unit of measurement.

When should you transfer money into savings in the 'Pay Yourself First' method?

You should transfer a pre-determined amount into savings at the beginning of the month in the 'Pay Yourself First' method.

A broker fee is

a commission that the real estate agent earns when they successfully rent out a unit. Most fees are equivalent to 12-15% of the annual rent. In most U.S. cities the landlord pays the broker fee.

Security Deposit

a sum of money you pay to your landlord or property management company when you sign a new lease, usually equal to one to two months' rent. (Some states actually limit how much money a landlord can request for a security deposit.) Think of it as insurance for the apartment owners. They can keep some or all of the money if you skip out on your rent or severely damage the apartment. But if you leave the unit as you found it—minus normal wear and tear—your landlord should refund your entire security deposit when your lease is up.

A mortgage is

a type of loan that's used to finance property. Mortgages are "secured" loans. With a secured loan, the borrower promises collateral to the lender in the event that they stop making payments. In the case of a mortgage, the collateral is the home. If you stop making payments on your mortgage, your lender can take possession of your home, in a process known as foreclosure.

Equal billing

allows you to pay the same amount each month and then either pay extra or get a refund in January if your actual use differed from the amount billed over the year.

New technologies such as

apps and social media have helped grow gigs

You should plan to stay in the house for

at least five years

Individual landlords who manage their own properties don't usually

charge these kinds of fees. (administrative fees)

An administrative fee is often

charged in conjunction with an application fee when you apply to rent an apartment.

Examples of Whammy expenses

emergency room payment, car crash payments

Employees are

individuals working full-time for an employer who pays their taxes, health insurance, and pension (optionally), and regulates their sick leave and holidays.

In the early years of paying off your mortgage you are mainly paying off the

interest.

Administrative fees are usually attached to

larger complexes where a property management company runs the show.

When renting an apartment you have to sign a

lease agreement which outlines the terms of your rental. This can include things like rent amount, apartment policies, and move-out procedures.

In most cases a house will re-sale for

more than it was purchased, therefore it is an investment in one's future.

A move-in fee is

nonrefundable and paid when you sign a lease. Sometimes it's used to offset the cost of a new tenant—updating mailboxes, changing directories, repairing damage to the hallway paint caused by movers—but other times it could just be a way to make extra money

Contractors

operate much like freelancers: they are self-employed, pay their own taxes, and can be involved with several clients at a time.

In the later years of paying off your mortgage you are paying off the

principal.

Financial Considerations for buying a house. You should make sure that you

qualify for good mortgage terms

freelancers

self-employed individuals, who pay their own taxes (not their client), and usually have more than one employer for whom they work. While they do consult with their employers/clients, freelancers enjoy a much larger autonomy and are normally given free rein to do their jobs and make decisions as they see fit.

Utilities are

services such as electricity, water, and natural gas that are provided to the home often through a local government or a natural monopoly.

The principal is

the actual amount of money you borrowed from the lender and not the interest payment.

A down payment is

the initial payment made when you buy something with credit.

Electricity usually accounts for

the largest part of utility bills.

Is an application fee refundable?

usually non-refundable The refund policy for an application fee depends on the rental application document and state laws

Examples of Recurring expenses

utility bills: (gas, electricity, and water)

gig economy

where the workers have short-term jobs or gigs such as freelancing and temp jobs.

Contractors are different from freelancers in that...

•Contractors can work solo, or through an agency; •They can be hired as a temporary replacement to a full-time worker; •They can work on the employer's premises and use their equipment; •More likely to work full-time and for a longer time for a single employer; •Clients/Employers also aren't obligated to pay health insurance or benefits.

Financial considerations when deciding where to live.

•Cost of living •Job availability •Commute •Quality and availability of health care. •Quality of Education • Desirability and Happiness •Crime

Why aren't Millennials buying houses?

•They will have to self-fund their retirement to a greater extent which is something older generations usually didn't have to consider. •They are paying down large student loans instead. •They prefer to spend money on other things like travel expenses.