Budgeting Basics Chapter 2 Quiz & Flashcards

Study Notes

Budgeting Basics

Budget Utilization: Only 35% of Americans actively use a budget.
Budget Components: Essential components include income, giving, saving, and spending.
Budgeting Methods: Budgets can be created using apps or traditional methods; apps often provide a better experience.
Four Walls Concept: Prioritize spending on food, shelter/utilities, clothing, and transportation.
Budget Categorization: Create as many categories as needed for personal financial clarity.
Monthly Budget Purpose: Serves as a guide to track income and expenses for the month.
Marriage and Budgeting: Couples should have budgeting meetings together to manage finances collaboratively.
Definition of Budgets: Detailed plans outlining how to allocate funds to achieve specific goals.
Cash Flow Statement Importance: Reflects on actual budget performance, summarizing total income and expenses after each month.
Adjustment Period: It takes approximately three months for a budget to function effectively.
Money Personality: Personal attitudes towards money influence budgeting strategies and planning.
Debt Stress Statistics: 46% of Americans experience stress related to their debt load.
Expense Types: Four categories—intermittent, fixed, variable, and discretionary—help classify expenses accurately.
Net Income Explanation: Refers to take-home pay after taxes and deductions.
Income Definition: Regularly received money from work or investments.
Financial Accountability: Involves maintaining financial records and communicating financial status to a trusted person.
Budgeting Permissions: A budget allows for intentional spending within set limits.
Priority of Giving: Giving should be the first item prioritized in a budget.
Adjusting Budgets: Budgets should be adjusted by reallocating funds from overspent categories to balance overall expenses.
Commission Understanding: A form of income calculated as a percentage of sales made.
Envelope System: A cash management method where envelopes for different spending categories help control expenses.
Irregular Income Handling: Budgeting for sporadic income from various sources requires a structured approach.
Keys to Successful Budgeting:
- Live on less than you earn.
- Seek ways to increase income.
- Draft a clear monthly budget.
- Plan specific expenses to avoid impulsivity.
- Maintain debt-free status.
- Save money by paying yourself first.
- Utilize unexpected gifts and income effectively.
Zero-Based Budget: Ensures every dollar is assigned to expenses, achieving a total of zero at month-end.
Unexpected Expenses: Include unforeseen costs such as emergencies or accidents.
Cash Flow Summary: Tracks all income and spending over a designated timeframe.
Average Household Spending: Typical monthly expenses are around $370 for groceries and $290 for dining out.
Expense Tracking Convenience: The most efficient method for monitoring expenses is through a budgeting app linked to a bank account.
Millionaire Budgeting Practices: 93% of millionaires create and follow a household budget.
Gross Income Definition: Total income from wages before any deductions are made.

Description

Explore the essential concepts of budgeting with flashcards covering key terms, components, and the budgeting process. Ideal for those learning financial literacy, these cards help reinforce knowledge of managing money effectively.