Money in Review Chapter 3 Flashcards

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?

An item that is bought without previous planning or consideration of the long-term effects. Signup and view all the answers

What occurs when you overdraft your account?

Money is withdrawn from a bank account and the available balance goes below zero. Signup and view all the answers

What is the envelope system?

A series of envelopes that are divided into categories (food, entertainment, gas, etc.) and are used to store cash for planned monthly expenses. Signup and view all the answers

What is a cash flow statement?

A summary that shows total income and spending for a given time period. Signup and view all the answers

What is a carbon check?

A copy of each check you write. Signup and view all the answers

The number-one cause of divorce in North America today is stress and disagreements over money.

True Signup and view all the answers

The envelope system works great for managing spending on things that don't normally have a fixed monthly expense.

True Signup and view all the answers

What are the consequences of overdrawing your checking account?

Overdraft fee from your bank, bounced check fee from the store, stress from money mismanagement. Signup and view all the answers

Doing a budget makes overspending more likely.

False Signup and view all the answers

What should your monthly budget include?

Fixed expenses, variable expenses, discretionary expenses. Signup and view all the answers

Why do cash flow plans sometimes not work?

Variable expenses or impulse purchases. Signup and view all the answers

Why is the zero-based budget considered the best method of budgeting?

It assigns an expense to every dollar. Signup and view all the answers

Why should you always have a cash flow plan?

Because it's a blueprint for your budget and building wealth. Signup and view all the answers

What are various payment options that come with a checking account?

Debit cards, writing checks. Signup and view all the answers

Why is it important to maintain a file of both paper and electronic financial records?

So you know how much you have to pay. Signup and view all the answers

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.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

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!