Budgeting Principles and Goals
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Budgeting Principles and Goals

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Questions and Answers

What is the first rule of budgeting?

Pay yourself first!

What is rule two of budgeting?

Live within your means (avoids bad credit score)

What unexpected factors could impact your budget?

Peer pressure, advertising, change in life situation (job, birth of child, married, school), acts of God, regular repairs/maintenance to your home/vehicle, holidays/birthdays

What are the three 'R's?

<p>Reality, restraint, and responsibility</p> Signup and view all the answers

What are the two types of expenses?

<p>Fixed expenses and variable expenses</p> Signup and view all the answers

What objective should you have in mind when designing your budget?

<p>Ensure that the finish line is well known and executed to the way you want to live life</p> Signup and view all the answers

What are SMART goals?

<p>Specific, Measurable, Attainable, Realistic, Time Oriented</p> Signup and view all the answers

When does a budget work?

<p>A budget works when the expenses and incomes are balanced, and every penny is accounted for</p> Signup and view all the answers

List fixed expenses.

<p>Mortgage/rent, car payment, gym membership, car insurance, Netflix</p> Signup and view all the answers

List variable expenses.

<p>Cell phone, gas, groceries, power, utilities, entertainment, dining out</p> Signup and view all the answers

What are fixed expenses?

<p>Costs that do not change per month; the individual pays the exact same amount each month</p> Signup and view all the answers

What are needs?

<p>Things an individual cannot do without</p> Signup and view all the answers

What is surplus?

<p>Too much of an item in stock</p> Signup and view all the answers

What are variable expenses?

<p>Monthly expenses that the dollar amount fluctuates per month</p> Signup and view all the answers

What does it mean to allocate?

<p>To spread an expense over more than one accounting period</p> Signup and view all the answers

What is a budget?

<p>An estimate of expected income and expenses over a given time period</p> Signup and view all the answers

What is a deficit?

<p>The amount to which the required amount falls short</p> Signup and view all the answers

What is discretionary income?

<p>The spending money left over at the end of each pay period/month after all mandatory responsibilities have been deducted</p> Signup and view all the answers

What are wants?

<p>Things an individual does not have to have in order to survive but could give a higher quality of life</p> Signup and view all the answers

What are emergency funds?

<p>Money set aside for an unplanned costly event</p> Signup and view all the answers

What are goals?

<p>Things an individual sets out to achieve</p> Signup and view all the answers

What is income?

<p>Earnings the amount of money an individual earns throughout a given period</p> Signup and view all the answers

What are trade-offs?

<p>Similar to compromising, exchanging one thing for another, usually about the same value</p> Signup and view all the answers

What is opportunity cost?

<p>What an individual gives up to have something else</p> Signup and view all the answers

What does 'pay yourself first' mean?

<p>Put money in savings or investment accounts first, then pay bills and discretionary income.</p> Signup and view all the answers

Study Notes

Budgeting Principles

  • Pay Yourself First: Prioritize saving or investing money before spending on other expenses.
  • Live Within Your Means: Avoid overspending to maintain a healthy credit score and financial stability.

Influences on Budget

  • Unexpected Factors: Consider peer pressure, advertising, life changes (like job shifts or family events), natural disasters, and seasonal expenses (holidays, birthdays) that can alter financial plans.

Fundamental Concepts

  • Three R's: Reality, Restraint, and Responsibility guide effective budgeting.
  • Types of Expenses:
    • Fixed Expenses: Consistent costs each month (e.g., rent, insurance).
    • Variable Expenses: Changing costs each month (e.g., groceries, utilities).

Budgeting Goals

  • Design Objective: Establish clear financial goals to shape the desired lifestyle.
  • SMART Goals: Set goals that are Specific, Measurable, Attainable, Realistic, and Time-Oriented for focused financial planning.

Effective Budgeting Conditions

  • Budget Functionality: A budget is effective when it balances income and expenses, with a commitment to adhering to established financial limits.

Expense Categories

  • Fixed Expenses: Include mortgage or rent, car payments, and membership fees.
  • Variable Expenses: Include costs that fluctuate monthly, such as groceries and dining out.

Financial Concepts

  • Surplus: Excess inventory or funds beyond needs.
  • Deficit: Shortfall where expenses exceed income.
  • Discretionary Income: Remaining funds available for non-essential spending after mandatory expenses.
  • Needs vs. Wants: Needs are essential for survival, while wants enhance quality of life.

Savings and Funds

  • Emergency Funds: Savings set aside for unforeseen expenses, like medical bills or vehicle repairs.
  • Goals: Objectives set for personal or financial achievement.

Income and Trade Concepts

  • Income: Total earnings received over a specific time period.
  • Trade-Offs: Compromises made by exchanging one item for another of similar value.
  • Opportunity Cost: The value of what is foregone to pursue another option.

Budgeting Strategy

  • Allocate: Spread expenses over multiple periods to manage cash flow effectively.

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Description

Test your understanding of budgeting fundamentals including the principles of saving, types of expenses, and setting effective financial goals. This quiz covers key concepts like 'Pay Yourself First' and the SMART goals framework to help you manage your finances better.

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