Questions and Answers
What term refers to the total earnings before any deductions have been made?
A savings account typically offers lower interest rates than a certificate of deposit.
True
What is the purpose of deductions in calculating net income?
To reduce gross income by subtracting taxes and other contributions.
A ______ is a financial institution that provides services such as deposit accounts and loans.
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Match the following financial terms with their definitions:
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What is the primary difference between gross income and net income?
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A certificate of deposit typically offers higher interest rates than a traditional savings account.
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What type of account is typically used for everyday transactions and payments?
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Every paycheck deducts federal income tax which is determined by the amount of __________ earned.
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Match the following financial terms with their descriptions:
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Study Notes
Budget Essentials
- A budget should include estimated income, fixed and variable expenses, savings goals, and investments.
- Income refers to the total earnings from all sources, such as salary, wages, and freelance work.
- Gross Income is the total earnings before any deductions or taxes.
- Net Income is the amount left after deducting all taxes and expenses, reflecting actual take-home pay.
Income Deductions and Taxes
- Deductions can include retirement contributions, health insurance premiums, and other payroll deductions.
- Federal Income Tax is imposed on net income, calculated on a progressive scale based on earnings, and withheld from each pay period.
Expense Components
- Expenses on a Budget typically include housing, utilities, transportation, groceries, insurance, entertainment, and miscellaneous costs.
- Fixed expenses remain constant (e.g., rent), while variable expenses can fluctuate (e.g., dining out).
Banking Institutions
- Bank: A for-profit institution that offers financial services, including loans and checking accounts, to customers.
- Credit Union: A not-for-profit institution owned by members, often providing lower fees and better interest rates.
Deposits and Withdrawals
- Deposit: Placing money into a bank or credit union account.
- Withdrawal: Taking money out of an account, may be via ATM, in-person, or checks.
Types of Accounts
- Checking Account: A deposit account meant for daily transactions, allowing easy access to funds through checks and debit cards.
- Savings Account: An account for saving money while earning interest, typically not used for daily expenses.
- Certificate of Deposit (CD): A time deposit that offers a fixed interest rate over a set duration, with penalties for early withdrawal.
Payment Methods
- Checks: Written orders directing a bank to pay a specific amount from the writer's account.
- Debit Card: A card linked to a bank account for direct payments and withdrawals.
- Credit Card: A card that allows borrowing up to a certain limit for transactions, requiring repayment with interest.
- Credit: The ability to borrow money or access goods or services with the promise to pay later, influencing credit scores and borrowing capacity.
Budget Essentials
- A budget should include estimated income, fixed and variable expenses, savings goals, and investments.
- Income refers to the total earnings from all sources, such as salary, wages, and freelance work.
- Gross Income is the total earnings before any deductions or taxes.
- Net Income is the amount left after deducting all taxes and expenses, reflecting actual take-home pay.
Income Deductions and Taxes
- Deductions can include retirement contributions, health insurance premiums, and other payroll deductions.
- Federal Income Tax is imposed on net income, calculated on a progressive scale based on earnings, and withheld from each pay period.
Expense Components
- Expenses on a Budget typically include housing, utilities, transportation, groceries, insurance, entertainment, and miscellaneous costs.
- Fixed expenses remain constant (e.g., rent), while variable expenses can fluctuate (e.g., dining out).
Banking Institutions
- Bank: A for-profit institution that offers financial services, including loans and checking accounts, to customers.
- Credit Union: A not-for-profit institution owned by members, often providing lower fees and better interest rates.
Deposits and Withdrawals
- Deposit: Placing money into a bank or credit union account.
- Withdrawal: Taking money out of an account, may be via ATM, in-person, or checks.
Types of Accounts
- Checking Account: A deposit account meant for daily transactions, allowing easy access to funds through checks and debit cards.
- Savings Account: An account for saving money while earning interest, typically not used for daily expenses.
- Certificate of Deposit (CD): A time deposit that offers a fixed interest rate over a set duration, with penalties for early withdrawal.
Payment Methods
- Checks: Written orders directing a bank to pay a specific amount from the writer's account.
- Debit Card: A card linked to a bank account for direct payments and withdrawals.
- Credit Card: A card that allows borrowing up to a certain limit for transactions, requiring repayment with interest.
- Credit: The ability to borrow money or access goods or services with the promise to pay later, influencing credit scores and borrowing capacity.
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Description
This quiz covers essential components of budgeting, including understanding gross and net income, deductions, and federal income tax. It also explores different banking services like checking and savings accounts, as well as payment methods such as debit and credit cards. Test your knowledge in managing personal finances effectively.
