Personal Finance Unit 4 Review - Budgeting & Saving

Front

How much should Samantha be saving each month (minimum)?

Back

$280.00

Answer explanation

Financial planners suggest that you save at least 10 PERCENT of your income.

10% of Samantha's monthly income is $280.

Front

What is Samantha's Wealth?

Back

$3700

Answer explanation

Samantha's wealth is the same as her Possessions (which totals $3700).

Front

What is Samantha's net worth?

Back

-$12,500

Answer explanation

Net Worth is the value of your Possessions minus your Total Debt.

Samantha's Possessions are $3,700 and her debt is $16,200.

$3,700 - $16,200 = $12,500

Front

What kind of budget balance does Samantha have? Options: A surplus, A deficit, A balanced budget, Not enough information provided to answer

Back

A surplus

Answer explanation

To calculate a budget balance, you subtract monthly expenditures from monthly income.

In this case $2800 - $2530 = $270

She earns more than she spends, so Samantha has a budget SURPLUS.

When expenses are more than income in a budget, it has a budget DEFICIT.

Front

Why are mutual funds a popular form of saving for many people?

Back

They ensure that your money is invested in a variety of stocks and bonds.

Answer explanation

Experts say your portfolio of investments should be DIVERSIFIED, meaning that you are invested in a variety of stocks and bonds.

Mutual funds are invested in many different stocks and bonds, so diversification is built in.

Front

Which of the following is the best description of a municipal bond? Options: This investment is safe, because you are lending money to the U.S. government., This investment is FDIC insured for up to $150,000., This investment represents ownership in a corporation., This tax-exempt investment is issued by state and local governments to raise funds.

Back

This tax-exempt investment is issued by state and local governments to raise funds.

Answer explanation

Many cities and local governments fund improvements to schools, road, etc. through municipal bonds.

The are considered safe, and. their earnings are tax deductible.

Front

Which of the following lists assets from MOST risky to LEAST risky? Junk Bonds, Mutual Funds, Certificates of Deposit, Treasury Bonds

Back

Junk Bonds, Mutual Funds, Certificates of Deposit, Treasury Bonds

Answer explanation

Remember that Junk Bonds are the MOST risky asset and Treasury bonds are the LEAST risky.

Front

What is the main difference between a traditional and a Roth IRA?

Back

With a traditional IRA, funds are deposited tax-free, but you must pay income tax when you withdraw the funds in the future. With a Roth, taxes are paid before funds are deposited, and are accessed tax-free when you're older.

Answer explanation

Both types of IRA's have tax benefits, and both are meant for long-term saving. Both have a similar rate of return.

The big difference is WHEN the taxes are paid.

With a traditional IRA - you pay the taxes when you are older.

With a Roth IRA - you pay the taxes when you are younger (before you put the money in the IRA).

Front

When choosing an investment, what is the relationship between risk and return?

Back

High risk investments come with the potential for a high return and low risk investments will yield a lower return.

Front

Who tracks your credit information and determines your credit score? Options: Equifax, Experian, and Transunion, Your bank, The Consumer Protection Bureau, Creditors and Lenders

Back

Equifax, Experian, and Transunion