Budgeting - Outcome Assessment

What role does a budget play in managing your personal finances?

Answer explanation

A budget is essential for tracking income and expenses, helping you achieve financial goals. Regularly updating it ensures it reflects your current situation, especially after life changes.

Benjamin is trying to cut down on his monthly expenses. Which of these costs would be the MOST difficult for him to adjust?

• Dining out at local restaurants

• Loan payment on a new car

• Expenses for new clothes

• Postponing a purchase for a big-screen TV

Answer explanation

The loan payment on a new car is a fixed expense that is typically contractual and cannot be easily adjusted, unlike discretionary spending on dining, clothes, or electronics, which can be reduced or postponed.

Jana is considering purchasing a new laptop now that she has graduated. She has compiled a list of questions to help her decide if the laptop is a necessity or a luxury. Which of the following questions should she REMOVE from her list?

• Will this laptop help me in my new job or career path?

• Is there a possibility of getting a discount if I wait for a holiday sale?

• What color laptop would look best with my current accessories?

• Do I have enough savings to buy this laptop without affecting my budget?

Answer explanation

Jana should remove the question about the laptop's color, as it focuses on aesthetics rather than practicality. The other questions address job relevance, budget, and potential savings, which are more critical for her decision.

Emma is trying to manage her finances using the 50/30/20 Rule. How should she allocate her take-home pay according to this rule?

• 50% needs, 30% on wants, and 20% on saving

• 50% on wants, 30% on needs, 20% on saving

Answer explanation

According to the 50/30/20 Rule, Emma should allocate 50% of her take-home pay to needs, 30% to wants, and 20% to savings. This ensures a balanced approach to managing her finances.

You have a yearly income of $50,000 and decide to save 15% of your gross salary. If you want to build a $22,500 emergency fund, how long will it take to reach your goal?

• 2 years

• 3 years

• 4 years

• 5 years

Answer explanation

You save 15% of $50,000, which is $7,500 per year. To reach a $22,500 emergency fund, divide $22,500 by $7,500, resulting in 3 years. Thus, it will take 3 years to reach your goal.

What does the principle of 'Pay yourself first' suggest you do with your income?

• Use your income to cover all expenses first, then save what's left

• Immediately allocate a portion of your income to savings before spending on anything else

• Invest in stocks and bonds before paying any bills

• Ensure all debts are paid off before considering saving any money

Answer explanation

The principle of 'Pay yourself first' emphasizes saving a portion of your income immediately, prioritizing savings over expenses. This approach ensures you build savings consistently before addressing other financial obligations.

What is the primary goal of a Zero-Based Budget?

• To allocate every dollar of income to a specific expense or savings category

• To ensure your checking account balance is zero at the end of the month

• To reduce your savings account to zero by month's end

• To eliminate all debts by paying them down to zero each month

Answer explanation

The primary goal of a Zero-Based Budget is to allocate every dollar of income to a specific expense or savings category, ensuring that all funds are purposefully assigned, rather than just tracking spending.

9. 1)How does envelope budgeting work? 2)List a pro and a con for this strategy

Answer explanation

Envelope budgeting involves allocating cash into envelopes for different spending categories. A pro is it promotes discipline in spending; a con is it can be inflexible if unexpected expenses arise.

You're thinking about moving into a 2-bedroom condo with a friend instead of renting a one-bedroom apartment by yourself. Which of your expenses is most likely to be lower with a roommate?

• Utilities

• Rent

• Internet bill

• Car insurance

Answer explanation

Rent is likely to be lower with a roommate because you can split the total cost of a 2-bedroom condo, making it more affordable than renting a one-bedroom apartment alone. Utilities, internet, and car insurance may not significantly decrease.

12. Greg is evaluating whether to buy a car or rely on public transportation in the city. Which of the following would be a compelling reason for Greg to purchase a car?

• Public transportation is available 24/7 near Greg's apartment

• Greg's workplace offers a shuttle service from the nearest train station

• The cost of maintaining a car is higher than using public transportation

• Greg's commute using public transportation takes over two hours each way

Answer explanation

Greg's commute taking over two hours each way is a compelling reason to buy a car, as it suggests that public transportation is inefficient and time-consuming compared to the convenience of having his own vehicle.