#1
1. What is the average recommended emergency fund size for personal finance?
Six months of living expenses
ExplanationProvides financial cushion in case of unexpected expenses or loss of income
#2
2. Which factor is NOT considered in calculating your credit score?
Monthly income
ExplanationNot directly factored in by credit scoring models
#3
15. What is the primary function of a credit report in personal finance?
To provide a record of an individual's credit history and financial behavior
ExplanationUsed by lenders to assess creditworthiness and determine loan terms
#4
3. What is the 'snowball' method in debt repayment?
Paying off the smallest debt first
ExplanationFocuses on building momentum by tackling smaller debts first
#5
4. How does compound interest affect savings over time?
Increases savings exponentially
ExplanationEarnings on both the initial principal and the interest reinvested
#6
6. How does the grace period on a credit card work?
It allows interest-free days on purchases if the balance is paid in full by the due date
ExplanationProvides a window to pay off balances without incurring interest
#7
7. What is a Roth IRA commonly used for in personal finance?
Retirement savings
ExplanationTax-advantaged vehicle for retirement investing
#8
8. What is the 50/30/20 rule in budgeting?
Spending 50% on needs, 30% on wants, and saving 20%
ExplanationProvides a simple guideline for budget allocation
#9
12. In the context of credit cards, what does 'APR' stand for?
Annual Percentage Rate
ExplanationReflects the annual cost of borrowing money on a credit card
#10
5. What is the purpose of a balance transfer on a credit card?
Consolidating high-interest debt to a lower-interest card
ExplanationHelps reduce interest payments by transferring debt to a card with a lower APR
#11
9. What is the concept of dollar-cost averaging in investing?
Investing a fixed amount of money at regular intervals, regardless of market conditions
ExplanationHelps reduce the impact of market volatility by spreading out investments over time
#12
10. How does a secured credit card differ from an unsecured credit card?
Secured cards require a cash deposit as collateral
ExplanationRequires a deposit that serves as collateral to establish credit
#13
11. What is the debt-to-income ratio used for in personal finance?
Evaluating an individual's ability to manage debt payments relative to income
ExplanationDetermines if an individual can comfortably manage additional debt based on income level
#14
16. What is the concept of compounding in the context of investments?
Reinvesting earnings to generate additional earnings over time
ExplanationSnowball effect of earning returns on both the initial investment and the accumulated returns
#15
17. How does the debt-to-credit ratio impact a credit score?
Lower ratio positively influences the credit score
ExplanationLower utilization indicates responsible credit management