Mastering Financial Management

What is the purpose of a budget?

• To track only income without expenses.

• To increase spending without limits.

• To avoid financial planning altogether.

• The purpose of a budget is to manage finances effectively.

Name one popular budgeting technique.

• Envelope budgeting

• Cash flow forecasting

• Zero-based budgeting

• 50/30/20 rule

What is zero-based budgeting?

• A system that requires a fixed percentage of income to be saved each month.

• Zero-based budgeting is a budgeting method that allocates every dollar of income to expenses, savings, or investments, ensuring total income minus total expenses equals zero.

• A budgeting approach that focuses solely on long-term investments.

• A method that only tracks expenses without considering income.

How does the 50/30/20 rule work?

• The 50/30/20 rule allocates 50% to savings, 30% to needs, and 20% to wants.

• The 50/30/20 rule divides income into 50% needs, 30% wants, and 20% savings/debt.

• The 50/30/20 rule divides income into 50% savings, 30% for emergencies, and 20% for discretionary spending.

• The 50/30/20 rule suggests spending 50% on entertainment, 30% on bills, and 20% on investments.

What is the difference between fixed and variable expenses?

• Variable expenses are predictable and fixed over time.

• Fixed expenses are always higher than variable expenses.

• Fixed expenses fluctuate based on income levels.

• Fixed expenses remain constant, while variable expenses change with activity levels.

What is an emergency fund and why is it important?

• A checking account for daily expenses.

• A retirement fund for long-term savings.

• An emergency fund is a savings account for unexpected expenses, and it is important for financial security and avoiding debt.

• A loan to cover unexpected costs.

What is the primary goal of investing?

• To avoid financial risks altogether.

• To save money for emergencies.

• To speculate on short-term market trends.

• To grow wealth over time.

What is the difference between stocks and bonds?

• Stocks pay fixed interest rates.

• Bonds are shares in a company.

• Stocks represent ownership in a company; bonds represent a loan to an entity.

• Stocks are safer than bonds.

What is diversification in investment?

• Diversification is investing all funds in a single asset.

• Diversification is a strategy to reduce risk by allocating investments across different assets.

• Diversification is a method to maximize returns by concentrating investments in high-risk assets.

• Diversification means avoiding any investment in stocks.

What is a mutual fund?

• A mutual fund is a type of bank account for saving money.

• A mutual fund is a loan given to businesses for expansion.

• A mutual fund is a government bond that guarantees returns.

• A mutual fund is an investment vehicle that pools money from multiple investors to buy a diversified portfolio of securities.