Budgeting Unit Test

Which of these costs would be the MOST difficult to adjust if you were looking to reduce your expenses?

• 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 typically cannot be easily adjusted or eliminated, unlike discretionary spending on dining, clothing, or electronics, which can be reduced or postponed.

You earn a salary of $40,000 per year and decide to save 20% of your gross pay. You set a goal of creating a $16,000 emergency fund. How long will it take for you to achieve your goal?

• 6 months

• 1 year

• 2 years

• 3 years

Answer explanation

You save 20% of $40,000, which is $8,000 per year. To reach your $16,000 goal, it takes $16,000 ÷ $8,000 = 2 years. Thus, the correct answer is 2 years.

If you are trying to substantially reduce the amount you spend on food, you should try...

• Cooking your own food at home for as many meals as possible

• Dining at restaurants more often so you don't waste water doing dishes

• Eating more snacks on the go and way fewer meals at home

• Drinking more coffee and soda so you are not as hungry for food

Answer explanation

Cooking your own food at home allows you to control ingredients and portion sizes, leading to significant savings compared to dining out or relying on snacks and drinks, which can be more expensive and less nutritious.

Leila just graduated from college and is comparing a few different cities to move to. Which of these factors is the LEAST important thing for her to consider right now?

• Average rent for an apartment

• Food and grocery store options in the area

• Employment opportunities

• Average cost of Uber, Lyft, or taxi fare

Answer explanation

The average cost of Uber, Lyft, or taxi fare is the least important factor for Leila right now. While transportation costs matter, securing a job, affordable housing, and food options are more critical for her immediate needs.

Greg is trying to decide whether he needs a car when he moves to the city. Which of the following would be a reason for Greg to get a car rather than use public transportation?

• There are several public transportation routes between Greg's apartment and work

• The cost of public transportation is less than Greg’s monthly car payment

• Greg’s company covers half the cost of his monthly public transportation pass

• Using public transportation, Greg’s commute to work one-way is two hours

Answer explanation

Greg should consider getting a car because a two-hour one-way commute using public transportation is excessively long, making a car a more convenient option for his daily travel.

Isaiah has a summer internship at a technology company and is paid $3000. After federal and state taxes, Social Security, and Medicare are deducted, his take-home pay is 2,500. Which of the statements below is correct?

• His gross and net pay are $3,000

• His gross and net pay are $2,500

Answer explanation

Isaiah's gross pay is $3,000, which is the total amount before deductions. His net pay, after taxes and other deductions, is $2,500. Therefore, the correct statement is that his gross pay is $3,000 and net pay is $2,500.

You are putting together your first post-graduation budget. Your net pay is $2500 per month and you estimate that your monthly expenses will be 2,625. Which of the following is TRUE?

• You have an extra $125 each month that you can spend on a fun or leisure activity

• You can invest a portion of your monthly income into a retirement fund, as your expenses are well within your budget

• You need to either cut back on your spending or find an additional source of income to balance your budget

Answer explanation

Your expenses of $2,625 exceed your net pay of $2,500, resulting in a deficit. Therefore, you need to either cut back on spending or find additional income to balance your budget.

You are interested in renting an apartment after graduating college. You meet with the landlord and complete the application. All of the following may need to be provided when you sign your lease EXCEPT:

• Proof of employment

• A bank account

• First and last month's rent

• A security deposit

Answer explanation

A bank account is not typically required when signing a lease. Landlords usually ask for proof of employment, first and last month's rent, and a security deposit to secure the rental agreement.

All of the following are good budgeting strategies if you want to save money at the grocery store EXCEPT:

• Focusing on unit price when comparing similar products

• Building a weekly meal plan around items you already own or items that are on sale that week, rather than just choosing foods you'd like to eat

• Focusing only on the price when comparing similar products

• Preparing a grocery list before you go to the store and avoiding buying items that aren’t on the list

Answer explanation

Focusing only on the price ignores other factors like quality and unit price, which can lead to poor purchasing decisions. The other strategies promote smarter shopping and better savings.

Which description is most accurate for a Zero-Based Budget?

• You put every dollar of your net pay into a budget category each month

• You spend your checking account balance down to $0 every month

• You spend your saving account balance down to $0 every month

• You pay every one of your debts down to $0 every month

Answer explanation

A Zero-Based Budget means allocating every dollar of your net pay to specific budget categories, ensuring that income minus expenses equals zero. This is why the correct choice is putting every dollar into a budget category.