Module 2 Planning and Budgeting Quiz

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What is the main focus of personal financial planning?

Achieving short-term and long-term financial goals (correct)

Investing in stocks and bonds

Opening multiple savings accounts

Purchasing luxury items

According to the 50-30-20 rule, what percentage of the budget should be allocated to savings?

30%

40%

10%

20% (correct)

What is the first step in creating a budget?

Estimating monthly income (correct)

Setting financial goals

Tracking monthly expenses

Comparing actual and estimated expenses

What is the purpose of comparing total estimated income and expenses in budgeting?

To assess financial priorities and goals Signup and view all the answers

Which category does 'Wants' fall under in the 50-30-20 rule for budgeting?

30% Signup and view all the answers

Why is tracking spending important in the budgeting process?

To ensure expenses align with the budget plan Signup and view all the answers

What is the main concept behind the time value of money?

Money has different worth at different times Signup and view all the answers

How is inflation defined?

Gradual increase in the general price level of goods and services Signup and view all the answers

What does the principle of time value of money suggest about protecting money?

Investing it to beat inflation Signup and view all the answers

What does the Snowball Effect refer to?

Exponential growth of money over time through compounding Signup and view all the answers

If you invest INR 1000 at the start of the year with an annual increase of 10%, what concept does this scenario illustrate?

Compounding growth Signup and view all the answers

How does the time value of money relate to investing?

Suggests investing money in avenues that beat inflation Signup and view all the answers

What is the primary reason for diversification in investments?

Avoiding financial loss from a single investment Signup and view all the answers

Why is diversification considered important in the context of investments?

To minimize the impact of a single asset's performance Signup and view all the answers

In the context of business, what does it mean to diversify income streams?

Reducing financial dependence on one source of income Signup and view all the answers

Mark owns a successful tech startup and wants to diversify his business. Which strategy would NOT be a good example of diversification?

Focusing solely on one product line Signup and view all the answers

Which of the following investment allocations would best represent a well-diversified portfolio?

50% stocks, 30% bonds, 20% real estate Signup and view all the answers

How does diversifying income streams contribute to financial security?

By reducing the impact of losing one income stream Signup and view all the answers

What type of expense remains the same in terms of price and frequency whenever they occur?

Fixed expenses Signup and view all the answers

Which type of expenses are very hard to forecast due to their varying nature?

Variable expenses Signup and view all the answers

What is an Emergency Fund specifically set aside for?

Financial emergencies Signup and view all the answers

What is the recommended range for an Emergency Fund's size in terms of living expenses?

4-6 months' expenses Signup and view all the answers

In relation to future retirement needs, how should emergency funds be considered?

Incorporated into future retirement planning Signup and view all the answers

Where should individuals prioritize parking their funds, according to the text?

Emergency Fund first, even if it requires lifestyle changes Signup and view all the answers