#1
Which of the following is a basic step in personal budgeting?
Set financial goals
ExplanationProvides direction and motivation for managing finances.
#2
What is the primary purpose of creating a personal budget?
To track income and expenses
ExplanationAllows for better financial awareness and control.
#3
What is the purpose of an emergency fund in personal finance?
To cover unexpected expenses
ExplanationProvides financial security in unforeseen circumstances.
#4
What does 'paying yourself first' mean in the context of personal finance?
Prioritizing saving or investing money before paying other expenses
ExplanationEnsures saving is a priority, fostering long-term financial stability.
#5
What is the purpose of a sinking fund in personal finance?
To save for a specific future expense
ExplanationEnsures funds are available for anticipated large expenses.
#6
What is the primary advantage of using cash envelopes for budgeting?
Better tracking of expenses
ExplanationProvides tangible limits, preventing overspending.
#7
Which of the following is an example of a fixed expense?
Utility bills
ExplanationRegular, predictable costs that remain consistent.
#8
What does the '50/30/20 rule' in personal finance generally suggest?
Spending 50% of income on needs, 30% on wants, and 20% on savings
ExplanationA guideline for allocating income to different financial priorities.
#9
What is the purpose of tracking expenses in personal budgeting?
To identify spending patterns
ExplanationHelps recognize areas for potential cost-saving or adjustment.
#10
Which of the following is an example of a variable expense?
Entertainment costs
ExplanationExpenses that can fluctuate from month to month.
#11
What is the purpose of a budget variance analysis?
To identify areas where actual spending differs from budgeted amounts
ExplanationAllows for adjustments to improve budget accuracy.
#12
What is 'snowball method' in personal finance?
A method to reduce debt by paying off smallest debts first
ExplanationProvides psychological motivation by achieving quick wins.
#13
What is 'zero-based budgeting'?
Allocating every dollar of income to a specific expense or savings category
ExplanationEnsures every dollar has a purpose, minimizing waste.
#14
What is the concept of 'opportunity cost' in personal finance?
The cost of missing out on the next best alternative when a decision is made
ExplanationHighlights trade-offs in financial decision-making.
#15
What is the purpose of a financial audit in personal budgeting?
To ensure financial accuracy and accountability
ExplanationVerifies financial records for reliability and compliance.
#16
What does 'debt-to-income ratio' measure in personal finance?
The ratio of debt payments to total income
ExplanationIndicates financial health and ability to manage debt.
#17
What is the concept of 'time value of money' in personal finance?
The principle that money available today is worth more than the same amount in the future
ExplanationRecognizes the impact of inflation and earning potential over time.