Foundations in Personal Finance Chapter 3 Test Study Questions

What are the consequesnces of of overdrawing your checking account? Bounced check fee from the store, the overdraft fee from your bank and stress from mismanagement.
Doing a budget does not . . . make overspending more likely.
Your monthly budget should include . . . Variable expenses, fixed expenses and discretionary expenses.
True or False: A budget is meant to summarize the saving and spending that has taken place over the past year. False
True or False: A millionaire spends less money than he or she makes. True
Rent is . . . a fixed expense.
Eating out is . . . a discretionary expense.
Car repairs are . . . an intermittent expense.
Groceries are . . . a variable expense.
A written budget, if followed, removes what from your finances? Overspending, management by crisis and guilt.
What are the guidelines for budgeting with an irregular income? Prioritizing the list in order of importance, making a list of all your expenses for the month ahead, and when your check comes in , spend your money all the way down your list.
The percentage of Americans living paycheck to paycheck is . . . 70%
The zero based budget is the best method of budgeting because . . . it ensures that EVERY dollar you make is assigned a specific purpose.
Will your bank reconcile your bank account for you? No
Where will you find the most current balances for your accounts? Your own account registers.
True or False: The number-one cause of divorce in North America today is stress and disagreements over money. True
True or False: The envelope system works great for managing spending on things that don’t normally have a fixed monthly expense. True
True or False: If you write a zero-based budget every month, it is not necessary to reconcile your account. False
True or False: Budgeting is crucial to your financial success. True
True or False: Writing and following a zero-based budget will help you avoid overspending and impulse purchases. True
True or False: A debit card cannot be used for online purchases. False
True or False: “Pay yourself first” means you should assign a portion of your income to saving and investing every month. True
True or False: Online bill pay allows you to make payments to whomever you wish without having to write a check and send it in the mail. True
True or False: Having more than one bank account is never a good idea since it can complicate money management. False
True or False: Setting up automatic account transfers is the easiest way to build your savings for your emergency fund or large purchases. True
Overdraft This occurs when money is withdrawn from a bank account and the available balance goes below zero.
Zero Based Budget A cash flow plan that assigns an expense to every dollar of your income, wherein the total income minus the total expenses equals zero.
Envelope System A series of envelopes that are divided into categories and are used to store cash for planned monthly expenses.
Impulse Purchase An item that is bought without previous planning or consideration of the long term effects.
Reconcile To match your bank statement with your checkbook.
Budget A written cash flow plan.
Fixed Expenses that remain the same from month to month.
Discretionary Non essential expenses.
Cash Flow Statement A summary of all the income and outgo over a certain time period.
Check Register Your own record of all your transactions.
What are the reasons cash flow plans sometimes do not work? Cash flow plans do not work when you leave things out, over complicate your plan, don’t write a budget, and/or don’t live on your budget.
Why is the zero-based budget the best method of budgeting? A zero-based budget ensures that every dollar you make is assigned a specific purpose.
Why should you always have a cash flow plan? A written plan removes the management by crisis, guilt, shame, fear, stress, overdrafts and overspending from your finances.
What are the various payment options that come with a checking account? Writing checks, debit card purchase (online or in store), and online bill pay.
Why is it important to maintain a file of both paper and electronic financial records? You should maintain both paper and electronic files: 1) As a reference for filing taxes, 2) so that you always have an accurate account balance, 3) So that you can catch errors made by the bank, 4) So that you are aware of fraudulent activity on your account.
Why is it important to develop a personalized financial plan for spending, saving, and record keeping? Everyone has different spending, saving, and organizational strengths and weaknesses. Your plan must work for you.
What are some changes in circumstances that might affect a personal budget? Examples: Change in or loss of income, change in family composition, etc. (answers can vary depending on circumstances)

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