Questions and Answers
Net income is the amount you get paid before taxes.
True
Why is budgeting so important?
It gives you control of your money and sets you up for financial success in the future.
How often should you create a budget?
monthly
What should you do if you overspend in one category of your budget?
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Detailed categories on your budget will help you make better spending decisions.
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The first priority in your budget should be _____.
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What are the Four Walls?
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If you have an irregular income, budgeting won't work for you.
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Your monthly rent payment is an example of a variable expense.
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What kind of money counts as income?
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The primary reason people don't budget is because they lack the behavior to stick to a budget.
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How many months does it usually take for your budget to start working as a budget should?
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Going to the movies is an example of what types of expenses?
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What is a discretionary expense?
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Why is tracking your expenses throughout the month important?
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A budget says what will happen with your money, while a cash-flow statement shows what already happened.
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What makes a budget a zero-based budget?
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If you really want to save money, you've got to...
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You should budget in this order: giving, saving, and spending.
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Why do stores rarely advertise the full price of big purchases like smartphones?
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The main reasons for saving your hard-earned money are...
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The purpose of an emergency fund is to...
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The best way to build wealth is to start investing early. You should start investing money...
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Why do some accounts, like savings accounts at your local bank, earn interest?
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One of the main reasons we build wealth is so that we can...
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The interest rate on a savings account determines...
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_______ is a millionaire's best friend.
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The amount of interest charged on a debt but not yet collected is called...
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The first step you should take when you want to make a large purchase is...
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Most millionaires make over $100,000 a year.
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Once you have a $500 emergency fund, you should...
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Which two habits are the most important for building wealth and becoming a millionaire?
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What are the 3 questions to ask yourself before you spend your emergency fund?
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Why is making a car payment a bad idea financially?
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Study Notes
Budgeting Basics
- Net income is income after taxes.
- Budgeting empowers financial control and future success.
- A budget should be created monthly for effective financial management.
- If overspending occurs in one category, adjust by reallocating funds from other categories.
- Detailed budget categories improve spending decisions.
Priorities and Essentials
- First budget priority: giving.
- Four Walls of budgeting: food, utilities, shelter, transportation.
- Budgeting can succeed even with irregular income through estimation.
Income and Expenses
- Rent is a fixed expense; variable expenses fluctuate, such as electricity.
- All received money, including gifts, counts as income.
- Lack of budgeting discipline is a primary reason people do not budget.
Budget Duration and Understanding
- Typically, it takes three months for a budget to function effectively.
- Discretionary expenses are non-essential, such as entertainment costs.
- Tracking expenses is vital for assessing budget adherence.
Budget Types and Principles
- A budget describes planned spending, while a cash-flow statement reviews past transactions.
- A zero-based budget allocates every dollar to a category.
- Saving requires living below your means for future financial security.
Investment and Wealth Building
- Budgeting order: give, save, spend.
- Stores often advertise only monthly payments to enhance perceived affordability.
- Main reasons for saving: emergencies, large purchases, wealth building.
Emergency Funds and Savings
- Emergency funds cover unexpected expenses and prevent debt accumulation.
- Start investing after college, being debt-free, and saving 3-6 months of living expenses.
- Savings accounts earn interest because banks utilize deposited funds.
Wealth Accumulation
- Wealth building is intended to help others in need.
- Interest rates on savings accounts impact growth speed over time.
- Compound growth significantly benefits long-term savings.
Financial Management
- Accrued interest refers to unpaid interest on debt.
- Plan large purchases by estimating required savings and timeframes.
- Many millionaires earn less than $100,000 annually.
Emergency Fund Utilization
- Maintain a $500 emergency fund until a real emergency arises.
- Key questions before using emergency funds: Is it unexpected? Is it necessary? Is it urgent?
- Car payments can be financially detrimental due to depreciation.
Studying That Suits You
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Description
Test your knowledge on key concepts from Chapters 2 and 3 of Dave Ramsey's financial guidelines. This flashcard quiz covers essential definitions and principles of budgeting and net income, designed to help you gain control over your financial future.
