Questions and Answers
What is a budget?
A written cash flow statement.
What does it mean to reconcile your bank statement?
The act of matching your bank statement with your checkbook.
What is a zero-based budget?
A cash flow that assigns an expense to every dollar of your income, wherein the total income minus the expenses equals zero.
What is an impulse purchase?
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What occurs when you overdraft your account?
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What is the envelope system?
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What is a cash flow statement?
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What is a carbon check?
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The number-one cause of divorce in North America today is stress and disagreements over money.
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The envelope system works great for managing spending on things that don't normally have a fixed monthly expense.
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What are the consequences of overdrawing your checking account?
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Doing a budget makes overspending more likely.
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What should your monthly budget include?
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Why do cash flow plans sometimes not work?
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Why is the zero-based budget considered the best method of budgeting?
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Why should you always have a cash flow plan?
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What are various payment options that come with a checking account?
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Why is it important to maintain a file of both paper and electronic financial records?
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Study Notes
Budgeting Basics
- A Budget is a written cash flow statement that details income and expenses.
- Reconciliation involves matching bank statements with checkbook records to ensure accuracy.
Types of Budgets
- A Zero-Based Budget allocates every dollar of income to expenses, resulting in a balance of zero after expenses are subtracted.
- The Envelope System organizes cash into envelopes for different spending categories (e.g., food, entertainment), helping manage monthly expenses effectively.
Spending Behavior
- An Impulse Purchase refers to an item bought spontaneously without prior planning, potentially leading to long-term financial effects.
- Overdrawing an account results in an Overdraft, when withdrawals exceed the available balance, leading to fees and potential financial stress.
Financial Statements
- A Cash Flow Statement summarizes total income and expenditures over a specific period.
- A Carbon Check serves as a duplicate of each check issued, providing a record of payments made.
Financial Management Insights
- Financial disagreements, especially regarding money, remain a leading cause of divorce in North America.
- Managing spending is made easier with systems like the envelope method for variable expenses that lack fixed costs.
Consequences of Financial Mismanagement
- Overdrawing an account incurs multiple fees: overdraft fees from banks and bounced check fees from merchants.
- Doing a budget does not inherently make overspending more likely; rather, it aids in financial discipline.
Key Budget Components
- A comprehensive monthly budget encompasses fixed expenses (consistent payments), variable expenses (changeable costs), and discretionary expenses (non-essential spending).
- Cash flow plans may fail due to unplanned variable expenses and impulsive purchases within discretionary spending.
Importance of Cash Flow Management
- A zero-based budget is considered the most effective method as it ensures every dollar is accounted for and assigned to a specific expense.
- Maintaining a cash flow plan is crucial; it acts as a blueprint for budgeting and accumulating wealth.
Checking Account Options
- Checking accounts commonly offer various payment options, including Debit Cards and the ability to Write Checks.
Record Keeping
- Keeping a file with both paper and electronic financial records is vital for understanding financial obligations and ensuring timely payments.
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Description
Test your knowledge with these flashcards from Chapter 3 of 'Money in Review'. This chapter covers essential budgeting concepts such as creating a budget, reconciling bank statements, and understanding zero-based budgeting. Perfect for anyone looking to improve their financial literacy!