#1
Which of the following is a fundamental principle of personal finance?
Diversification
ExplanationSpreading investments across different assets to manage risk.
#2
In the context of investing, what does 'ROI' stand for?
Return on Investment
ExplanationA measure of the profitability of an investment.
#3
What is the purpose of an 'emergency fund' in personal finance?
To cover unexpected expenses
ExplanationA reserve for unforeseen financial needs.
#4
In the context of budgeting, what does 'fixed expenses' refer to?
Expenses that remain constant each month
ExplanationRegular, predetermined costs unaffected by usage or consumption.
#5
In the context of budgeting, what does 'discretionary spending' refer to?
Expenses that can be adjusted or eliminated
ExplanationNon-essential expenses that can be varied or cut from the budget.
#6
What does the term 'APR' stand for in the context of loans and credit cards?
Annual Percentage Rate
ExplanationThe annualized cost of borrowing, including interest and fees.
#7
What is the 50/30/20 rule in personal finance?
Budgeting rule
ExplanationAllocating 50% to needs, 30% to wants, and 20% to savings.
#8
What does the term 'FICO score' represent in personal finance?
A credit score
ExplanationA numerical representation of creditworthiness.
#9
What is the purpose of a '529 plan' in personal finance?
College savings plan
ExplanationA tax-advantaged savings plan for educational expenses.
#10
What is the concept of 'tax deduction' in personal finance?
A reduction in taxable income
ExplanationAn expense that can be subtracted from total income to reduce taxes.
#11
What is the concept of 'opportunity cost' in financial decision-making?
The cost of choosing one alternative over another
ExplanationThe value of the next best alternative forgone when a decision is made.
#12
What is the purpose of a '401(k)' in personal finance?
Retirement savings account
ExplanationA tax-advantaged account for long-term retirement savings.
#13
What is the concept of 'compounding interest' in savings and investments?
Interest calculated on the total amount, including previous interest
ExplanationEarning interest on both the initial amount and accrued interest.
#14
What is the purpose of a 'Roth IRA' in personal finance?
A retirement savings account with tax-free withdrawals
ExplanationA tax-advantaged retirement account with tax-free withdrawals in retirement.
#15
What is the purpose of 'asset allocation' in investment strategy?
Diversifying investments across different asset classes
ExplanationSpreading investments to manage risk and optimize returns.