Chapter 3 - Personal Finance

Discretionary Expense

"Wants" rather than "needs" (spend w/discretion)

Zero-Based Budget

A cash flow plan that assigns an expense to every dollar of your income, wherein the total income minus the total expenses equals zero

Carbon Check

A copy of each check you write

Budget

A written cash flow plan

Variable Expense

Expenses that change (vary) from month to month

Intermittent Expense

Expenses that happen from time to time; usually unexpected

Doing a budget does not....

Make overspending more likely

Overdraft

Occurs when money is withdrawn from a bank account and the available balance goes below zero

Envelope System

Series of envelope that are divided into categories (food,entertainment,gas,ect.) and are used to store cash for planned monthly expenses

Reconcile

The act of matching your bank statement with your checkbook

The envelope system works great for managing spending on things that don't normally have a fixed monthly expense.

True

The number-one cause of divorce in North America today is stress and disagreements over money.

True

Describe the various payment options that come with a checking account.

Writing checks,debit card purchases (online or in store), online bill pay, mobile banking

Which of the following is a consequence of overdrawing your checking account?

All of the above! (Overdraft fee from your bank,Bounced check fee from the store ,Stress from money mismanagement)

Impulse Purchase

An item that is bought without previous planning or consideration of the long-terms efffects

Your monthly budget should include....

Fixed Expenses,Variable Expenses,and Discretionary Expenses

Why is it important to maintain a file of both paper and electronic financial records?

You should maintain both paper & electronic files.... -As a reference for filing taxes - So that you always have an accurate account balance - Catch errors made by the bank - Be aware of fraudulent activity on your account

Fixed Expense

A set expense that doesn't change from month to month

Cash Flow Statement

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

Explain why you should always have a cash flow plan.

A written plan removes the management by crisis,guilt,shame,fear,stress,overdrafts,and overspending from your finances

Why is the zero-based budget the best method of budgeting?

A zero-based budget ensures that every dollar you make is assigned a specific purpose

What are the reasons cash flow plans sometimes do not work?

Cash flow plans don't work when you - leave things out, overcomplicate your plan, don't write a budget, or don't live on your budget