Foundations in Personal Finance- Chapter 3 Test Review

Consequences of overdrawing your checking account? – Bounced check fee from the store- Stress from money mismanagement- Over draft fee from bank
Having a budget -Keeps you from overspending, removes guilt and shame sometimes associated with a purchase, shows if you are overspending in an area, and makes your money go farther
Your monthly budget should include: – Variable expenses- Discretionary expenses- Fixed expenses
A budget – A budget is meant to guide you in the future in your money management
Which of the following is something that a typical millionaire would do? Spend less money than he/she makes
Rent is (type expense): – Fixed expense
Eating out (type expense): – Discretionary expense
Car repairs a (type expense): – Intermittent expense
Groceries are a (type expense): – Variable expense
A written budget, if followed, removes_ from your finances? – Guilt- Overspending-Management by crisis
The following are guidelines for budgeting with an irregular income: Prioritize the list in order of importance, make a list of all of your expenses for the month ahead, when your check comes in, spend your money all the way down the list.
Percentage of Americans living paycheck to paycheck: 70%
The zero-based budget is the best method of budgeting because: The zero-based budget ensures that every dollar you make is assigned a specific purpose.
Record keeping features/services you can expect from your bank An account register, a reconciliation sheet, and a monthly account statement
Which account record would have the most current balance? Your own account register.
The number one cause of divorce in North America today is stress and disagreements over money. T/F True
The envelope system works great for managing spending on things that don’t normally have a fixed monthly expense. T/F True
If you write a zero-based budget every month, it is not necessary to reconcile your account. T/F False
Budgeting is crucial to your financial success. T/F True
Writing and following a zero-based budget will help you avoid overspending and impulse purchases. True
A debit card cannot be used for online purchases. False
” Pay yourself first” means you should assign a portion of your income to saving and investing every month. True
Online bill pay allows you to make payments to whomever you wish without having to write a check and sending it in the mail. True
Having more than one bank account is never a good idea since it can complicate money management. False
Setting up automatic account transfers is the easiest way to build your savings for your emergency fund or large purchases. True
Occurs when money is withdrawn from a bank account and the available balance goes below zero. Overdraft
A cash flow plan that assigns an expense to every dollar of your income, wherein the total income minus the totally expenses equals. Zero-based budget
Series of envelopes that are divided into categories and are used for planned monthly expenses. Envelope system
An item that is bought without previous planning or consideration of the long-term effects. Impulse system
To match your bank statement with your checkbook Reconcile
A written cash flow plan. Budget
Expenses that remain the same from month to month. Fixed
Non-essential expenses. Discretionary
A summary of all the income and outgo over a certain time period. Cash flow statement
Your own record of all your transactions. Check register
Cash flow statement Summarizes all of the income and outgo (spending) over a certain time period. It is reflective of what has already taken place.
Budget A written plan for saving and spending
Some things a typical millionaire would NOT do Lease a car, replace things that are not broken, carry debt
Budgeting with an irregular income is no different than budgeting with a regular income. T/F False
Reasons a cash flow plan (budget) may not work Fail to have or follow a budget, overcomplicate your plan, leave things out
Why is a zero-based budget the best method of budgeting? Every dollar you make is assigned a specific purpose.
Why should you have a cash flow plan? It removes the management by crisis, guilt, shame, fear, stress, overdrafts and overspending from your finances.
Payment options that come with a checking account? Writing checks, debit card purchase (in store or online), online bill pay
Reasons you need to maintain a file of both paper and electronic financial records. As a reference for filing taxes, always have an accurate account balance, can catch errors made by the bank, and can detect fraudulent activity on your account.
It is important to develop a personalized financial plan for spending, savings, and record keeping. Everyone has different spending, saving and organizational strengths and weaknesses. Your plan must be specific to you.
Describe some changes in circumstances that might affect a personal budget. Change in income, marriage/divorce, family composition.
Outstanding checks Any checks written, but not yet cleared the bank.
Bank Statement A bank listing of checks paid, deposits and service charges.
Restrictive endorsement To sign your name on the back of a check payable to you limiting the use of the check.
Endorsement in full or special endorsement Transfers the check to another person.

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