Budgeting Basics

What is the envelope method of budgeting?

• The envelope method of budgeting is a cash-based budgeting system where you allocate specific amounts of cash into separate envelopes for different spending categories.

• The envelope method is based on tracking expenses in a spreadsheet

• The envelope method requires investing all savings in the stock market

• The envelope method involves using credit cards for all expenses

Explain the 50/30/20 budgeting rule.

• The 40/30/30 budgeting rule recommends dividing your income into 40% for needs, 30% for wants, and 30% for savings or debt repayment.

• The 60/20/20 budgeting rule recommends dividing your income into 60% for needs, 20% for wants, and 20% for savings or debt repayment.

• The 70/20/10 budgeting rule recommends dividing your income into 70% for needs, 20% for wants, and 10% for savings or debt repayment.

• The 50/30/20 budgeting rule recommends dividing your income into 50% for needs, 30% for wants, and 20% for savings or debt repayment.

How does the zero-based budgeting method work?

• Zero-based budgeting method works by carrying over the previous budget without any adjustments.

• Zero-based budgeting method works by setting a fixed budget for all expenses regardless of justification.

• Zero-based budgeting method works by randomly allocating funds to different departments.

• Zero-based budgeting method works by creating a budget from scratch for each budgeting period, starting from zero and justifying every expense.

Describe the two account method of budgeting.

• The two account method of budgeting combines income and expenses into one account

• The two account method of budgeting involves tracking expenses only

• The two account method of budgeting focuses on short-term financial goals

• The two account method of budgeting separates fixed expenses from variable expenses to better track and manage spending.

What are the advantages of using the envelope method?

• Budgeting, tracking expenses, awareness of spending habits, prevention of overspending, allocation of funds

• Traveling the world, skydiving, bungee jumping

• Singing lessons, painting classes, dance workshops

• Cooking recipes, gardening tips, workout routines

How can the envelope method prevent overspending?

• By setting money on fire

• By burying cash in the backyard

• By physically separating cash into different envelopes for specific categories, individuals can visually track and limit their spending within each category, preventing overspending.

• By using a credit card for all purchases

In what situations would the 50/30/20 budgeting rule be most effective?

• The 50/30/20 budgeting rule is most effective for individuals with a steady income and fixed expenses who want a simple budgeting plan.

• The 50/30/20 budgeting rule is most effective for individuals with irregular income and fluctuating expenses.

• The 50/30/20 budgeting rule is most effective for businesses with multiple revenue streams.

• The 50/30/20 budgeting rule is most effective for retirees living on a fixed income.