Personal Finance Chapter 3

Carbon Check

A copy of each check you write

Cash Flow Statement

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

Budget

A written cash flow plan

Impulse Purchase

An item that is bought without previous planning or consideration of the long-term effects

1) Checks 2) Debit Card (in store or online) 3) Online Bill Pay 4) Mobile Banking

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

Make overspending more likely

Doing a budget does not:

Discretionary (Non essential) Expense

Expenses for things we don't need (eating out, gifts and candy)

Intermittent Expense

Expenses that occur at various times throughout the year and tend to be in large lump sums (tuition payments, athletic or club dues, car repairs)

Fixed Expense

Expenses that remain the same form month to month (rent, insurance premiums, cable bill)

Variable Expenses

Expenses that vary from month to month (electricity, gasoline, groceries, clothing)

It removes: Management by crisis, guilt, shame, fear, stress, overdraft, and overspending

Explain why you should always have cash flow plan.

Variable Expense, Fixed Expense, Intermittent Expense, and Discretionary (Non-Essential) Expense

Four types of Expenses to Budget for:

Overdraft

Occurs when money is withdrawn from a bank account and the available balance goes below zero

Envelope System

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

Reconcile

The act of matching your bank statement with your checkbook

True

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

1) Live on less than you make. Don't spend every dollar of your paycheck 2) Keep on learning and finding ways to grow your income 3) Write a monthly budget that includes saving, giving, and spending. Stick to it. 4) Plan your spending and avoid impulse or unnecessary purchases 5) Stay out of debt 6) Pay it yourself. This means assigning a portion of your income to saving and investing every month 7) Use gifts and "extra" income wisely.

Wealth-Building Habits

1) Leave things out 2) Overcomplicate your plan 3) Don't write a budget 4) Don't live on your budget

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

Overdraft fee, Bounced check fee from the store, and stress from money management

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

1) As a reference for filing taxes 2) So you can always have an accurate account balance 3) To catch errors made by the Bank 4) To be aware of fraudulent activities on your account

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

Fixed expenses, variable expenses, and discretionary expenses

Your monthly budget should include:

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

insures that every dollar you make is assigned a special purpose

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