Personal Finance Chapter 4 Study Guide

If your monthly income from your job is $600, and you want to save 25%, how much would you save each month? a. $125 c. $200 b. $150 d. $250

$150

If Mateo wants to share 5% of his monthly income of $500, how much would he share in dollars? a. $10 c. $20 b. $15 d. $25

$25

Explain how a budget is like a roadmap.

A roadmap provides directions to get you from place to place until you reach your destination. In the same way, a budget is a plan for how to use or save your money, in small steps, to reach your financial goals.

T or F: When planning to buy a car, it's wise to try to save the money QUICKLY, creating small benchmarks. _________________________

False over a long time

T or F: Consolidating debts into a LARGER payment can help when you need to modify your fixed expenses. _________________________

False smaller

What is the first thing to consider when planning a budget? a. cash flow statement c. estimated expenses b. financial goals d. emergency fund

Financial goals

Contrast fixed expenses and variable expenses, provide examples of each, and explain how they should be treated in a budget

Fixed expenses stay the same from month to month. They include rental or house payments, car and car insurance payments, and student loan payments. They can also vary from month to month, but not too much. They must be paid no matter what and usually cannot be paid on credit. They are the first expenses to list on a budget. Variable expenses change from month to month. They might include auto repairs, medical bills, and clothing. They must be accounted for in a budget by averaging and estimating. They can also include unexpected large expenses, such as replacing a furnace or repairing a roof. Building an emergency fund by putting a small amount of money aside each month can help prepare for unexpected expenses.

Janie earns $12.00 an hour and works 34 hours a week for 10 weeks during the summer. She earns $8.00 an hour and works 10 hours a week for 36 weeks during the school year. What figure should she use to determine her income for her budget? a. monthly summer income b. combined incomes c. total school year income d. monthly school year income

Monthly school year income

Explain why some fixed expenses actually vary and how to budget so that you can meet those expenses. What would you do if you then had a budget surplus?

Some fixed expenses, such as electric, water, and heating bills, fluctuate from month to month, because you use different amounts of the services. You can estimate how much to budget for these expenses by averaging how much you have paid over time (such as a year). Then you can budget a monthly figure near the high end of the range to make sure you have enough each month to cover the varying expense. You could put the surplus into a saving fund or an emergency fund, or you could put it back into the budget for next year's fixed or variable expenses.

T or F: Saving to replace your printer will mean considering the TIME AND MONEY required to reach your goal. _________________________

True

T or F: Trying to save money to buy a house while you are working only 10 hours a week would not be practical. _________________________

True

Identify some ways you could modify your budget if you continue to have a deficit at the end of the month

You could cut back on spending, cut back variable expenses, think of free or inexpensive activities for entertainment, consolidate fixed expenses into smaller payments, save a bit less toward a saving or a sharing goal

List the types of estimated income to include in a cash flow statement.

You would include money you expect from wages, allowance, and interest on investment and savings.

the situation when expenses exceed income

budget deficit

the situation when income exceeds expenses

budget surplus

What is the best way to budget your income if you work a different number of hours each week? a. by averaging income over several weeks b. by estimating income over several weeks c. by averaging income over several months d. by estimating income over several months

by averaging income over several months

income and expenses

cash flow

a document you refer to when first setting up your budget

cash flow statement

How can you make sure your budget is on track after you set it up? a. compare your actual income and expenses for one month, and look for a surplus at the end of the month b. monitor how much you spend and take in each month c. compare your budgeted income and expenses with your actual income and expenses for two weeks d. keep a daily spending log

compare your budgeted income and expenses with your actual income and expenses for two weeks

Which of the following is not a quality of a good budget? a. goal based c. deficit based b. flexible d. practical

deficit based

You can prepare for unexpected expenses by regularly putting money into a(n) a. estimated fund. c. saving fund. b. emergency fund. d. variable fund.

emergency fund

money set aside for repairing or replacing items that break down

emergency fund

educated guess based on information you have

estimate

T or F: Include expected or estimated income and known or estimated expenses when creating an ongoing GOAL CHART. _________________________

false cash flow statement

T or F: When you are setting up your budget, INCLUDE the money you earned selling your dog's litter of puppies. _________________________

false do not include

T or F: People who cannot afford to put aside very much money for SAVINGS goals often contribute time and energy as well. _________________________

false sharing

T or F: Planning a cross-country camping trip with friends is an example of a MEDIUM-TERM goal. _________________________

false short-term

T or F: A COMPLICATED budget is more likely to motivate you to achieve your financial goals. _________________________

false simple

a cell phone bill

fixed expense

list of what you expect to achieve and how you will achieve it

goal chart

Which of the following events would not require reworking a budget? a. having a budget surplus c. losing a job b. starting a new job d. getting married

having a budget surplus

Which of the following items should always be included in a cash flow statement? a. income from wages c. fixed expenses b. savings d. all of the above

income from wages, fixed expenses, and savings

Fixed expenses include all of the following except a. electric bill. c. new tires. b. house payment. d. food.

new tires

Which of the following most accurately describes a budget deficit? a. the money left over after all expenses are paid b. the difference between income and expenses c. expenses owed every month d. not having enough money to cover expenses

not having enough money to cover expenses

Short-term goals are goals you hope to achieve in how many years? a. one to three years c. one to seven years b. one to five years d. one to ten years

one to five years

a retirement fund

open-ended goal

If Shauna finds a budget deficit two weeks after creating her budget, which of the following is the best way for her to eliminate the deficit? a. get a new job c. review expenses and cut back b. stop paying rent to her parents d. stop putting money in savings

review expenses and cut back

Which of the following should be included in a goal-planning worksheet? a. short-term, medium-term, and long-term goals b. short-term, saving, and open-ended goals c. sharing, spending, and saving goals d. sharing, open-ended, and spending goals

sharing spending and saving goals

T or F: Linking goals to VALUES helps motivate people to achieve their goals. _________________________

true

what is most important to you

values