Chapter 6- Personal Finance

What does the - sign mean?

- means you received (income) less or spent (expenses) less

Despite the fact that all consumers can benefit from having a realistic budget, few consumers have realistic budgets. List four reasons for this.

1. Some people get too specific and the detail becomes too much trouble 2. Bad predictions of what flexible expenses will cost 3. People place too many expenses under the category miscellaneous 4. Some people give up on budgets because they feel they take up too much time

Create a worksheet. What categories (in columns) should your worksheet include?

4 Columns -Headings -Expected amount for title -Actual amount for title -Over or Under

What is the 50/20/30 rule - which percentage should you spend on which category?

50%- Fixed Expenses 20%- Savings 30%- Fun

Making and following a budget is part of the work of earning and being able to spend your income. Define budget.

A plan for dividing up your income between spending and saving options

Define a budget worksheet.

A planning document on which you record your expected and actual income and spending over a short time.

What is a fixed expense?

Amount you have already committed to spend; typically the same amount each month

What is an uneven expense? What is an example?

Amounts that are paid at different times throughout the year. -Car/Home Insurance -Home Taxes

Define flexible expenses?

Amounts you can choose to spend or not spend

How often should you review your annual budget? What should you do if your goals change?

At least once a year and make changes if your goals change.

How can you make sure your budget doesn't have any errors in it?

Audit- check your budget for accuracy and to determine whether it is helping you achieve your goals

What are the 5 important topics when it comes to The Budget Process?

Choose Financial Goals Track Income and Expenses Prepare Budget Worksheets Review and Adjust your Budget Worksheet Create your Budget for the Year

What are examples of things that could help you track your expenses/spending?

Create a filing system to keep track of your income and your spending

What can a budget help you with?

Creating, reviewing, and sticking to your budget can help you reach your financial goals and help keep you out of debt.

Estimate Your Expenses and Savings. What should you list first; fixed expenses or flexible expenses? Explain why.

First list fixed then flexible.

Is it possible to have uneven expenses just like having uneven income? Explain what it means to have uneven expenses.

Gas prices can go up which would create an uneven expense.

Define luxury goods.

Goods that have special qualities that make them more expensive than alternative goods

Is it possible to have income that you weren't expecting? If so, how would you record this on your budget worksheet?

If you have a birthday and your family gives you money for your birthday. Or if you get a promotion some time in the month that you weren't expecting.

Record Your Actual Income and Expenses. What should you do as you receive income or make purchases during the month?

Keeping receipts and bills to put in at the end of the month.

What are 2 reasons (of the 6) why you feel budgeting is important?

Leads to a happier retirement Prepares you for emergencies

How can you identify between a need and a want?

Make a list Prioritize Set short and long term goals to reach

What is the first step in budgeting?

Must look at goals

Estimate Your Income. When estimating your income, should you use your net income or gross income?

Net income

What should you do if you spend more than you expected in a particular month?

Reduce flexible expenses

What are some examples of fixed expenses?

Rent or mortgage Student loans Car insurance and car payment

Why should savings be a planned expense?

Savings should be a planned expense because you need to be constantly putting money into your savings each month to prepare for unexpected expenses.

When making adjustments or plans to your budget worksheet, should you have several plans or only one. Explain.

Several plans to see which one works best.

Give some examples of flexible expenses.

Should I buy a new hat or coffee Groceries- name brand Subscriptions- magazines, streaming videos

What are two things you can do with your money?

Spend or Save

What are the five steps that should be used when creating a budget worksheet?

Step 1: Create a worksheet Step 2: Estimate your income Step 3: Estimate expenses and savings Step 4: Record your actual income and expenses Step 5: Calculate the difference

Is the rising trend for people to eat out or buy groceries and make food at home? Why?

The rising trend is for people to eat out because of time.

What is the purpose of an annual budget?

These budgets help their creators to plan for the upcoming year and make the necessary adjustments to meet their financial goals. Annual budgets help individuals to better manage their money.

What 2 things do you need in order to create a budget?

Track your spending and income.

Calculate the Difference. In this step you will need to subtract the expected amount from the actual amount in each row. How should you record this difference in the Over or Under Column?

Using the + and - signs with the amount.

What should you do after you complete your budget worksheet?

Were you over (+) or under (-) in each category

Is it possible to set up a budget for a year as opposed to only one month at a time? If so, what would be the benefit of having a yearly budget?

Yes it's possible to have a yearly budget. The benefit of a yearly budget is it helps meet financial goals and manage money over a period of a year.

Is it common for young people to go into debt? Why or why not?

Yes, because they don't know how to budget and college, housing, etc are expensive.

When budgeting, it is important to think about others in your family. Explain why that statement is true.

Yes, because you have to think about their needs as well as yours. Their needs should be just as important as your own.

How do you decide a family budget?

You and your family members will probably need to compromise to come up with the best decision for everyone involved.

What happens if you "estimate" more than you actually receive?

You have to find a way to cut down your expenses. (flexible expenses)

What does the + sign mean?

You received (income) more or spent (expenses) more