Personal Finance Study Guide

Question 1: What is a budget? Explain in your own words.

• A type of animal

• A financial plan that outlines expected income and expenses over a certain period of time.

• A type of car

• A type of fruit

Question 3: Give an example of a need and a want.

• Shelter and a designer handbag

• Medicine and a luxury yacht

• Food and a vacation

• Water and a new car

Question 4: Explain why it's important to know the difference between needs and wants when making spending decisions.

• To ignore the difference between needs and wants

• To buy everything we want without considering the cost

• To make sure we spend all our money on unnecessary items

• To prioritize essential expenses and avoid unnecessary purchases.

Question 5: You have $20 to spend. How would you decide between buying a new toy or saving the money for something else?

• Saving money is boring, just buy the toy

• Just buy the toy, you can always save money later

• It depends on your priorities and long-term goals.

• Buy the toy now and worry about saving later

Question 6: What is the difference between income and expenses? Provide an example of each.

• Income is the money spent, such as rent or groceries. Expenses are the money received, such as salary or rental income.

• Income is the money received, such as salary or rental income. Expenses are the money spent, such as rent or groceries.

• Income is the money borrowed, such as a loan. Expenses are the money lent, such as interest earned.

• Income is the money saved, such as investment returns. Expenses are the money earned, such as wages.

Question 7: How does debt affect your ability to make future purchases?

• It has no impact on your ability to make future purchases.

• It reduces your available income for spending on new items.

• It increases your available income for spending on new items.

• It allows you to buy more expensive items in the future.

Question 8: What is credit?

• Credit is the ability to give money to others

• Credit can be used responsibly by maxing out credit cards

• Credit is the ability to borrow money or access goods or services with the understanding that you'll pay later. It can be used responsibly by making timely payments, keeping credit card balances low, and only borrowing what you can afford to repay.

• Credit is the same as debit

Question 9: How would you prioritize your spending if you have limited income and multiple expenses to cover?

• Save all the money for future expenses

• Spend all the money on non-essential items

• Prioritize essential expenses first, then high-interest debt and necessary expenses before discretionary spending.

• Pay off low-interest debt first

Question 10: Explain the concept of 'saving for a rainy day' and why it's important in budgeting.

• Borrowing money for unnecessary purchases

• Spending all money as soon as it is earned

• Setting aside money for unexpected expenses or emergencies

• Investing in high-risk stocks