Personal Finance

Cards (24)

• 1
  Front

  What is a budget?

  Back

  A plan that allocates expected income toward expenses, savings, and debt repayment over a set period, typically monthly.

• 2
  Front

  What is the 50/30/20 budgeting rule?

  Back

  Allocate 50% of after-tax income to needs, 30% to wants, and 20% to savings and debt repayment.

• 3
  Front

  What does 'paying yourself first' mean in budgeting?

  Back

  Automatically directing a portion of income to savings or investments before spending on anything else.

• 4
  Front

  What is the time value of money (TVM)?

  Back

  The principle that a dollar available today is worth more than a dollar in the future because today's dollar can be invested to earn returns.

• 5
  Front

  What is the formula for compound interest?

  Back

  A = P(1 + r/n)^(nt), where P is principal, r is annual interest rate, n is compounding periods per year, and t is time in years.

• 6
  Front

  How does compounding frequency affect investment growth?

  Back

  More frequent compounding (e.g., daily vs. annually) results in slightly higher effective returns because interest is earned on interest sooner.

• 7
  Front

  What is the Rule of 72?

  Back

  Divide 72 by the annual interest rate to estimate the number of years it takes for an investment to double in value.

• 8
  Front

  What is a credit score and what range does FICO use?

  Back

  A numerical measure of creditworthiness based on credit history; FICO scores range from 300 to 850, with higher scores indicating better credit.

• 9
  Front

  What are the five factors that determine a FICO credit score and their approximate weights?

  Back

  Payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%).

• 10
  Front

  What is a credit utilization ratio and what is the recommended threshold?

  Back

  The percentage of available revolving credit currently in use; keeping it below 30% is generally recommended to maintain a good credit score.

• 11
  Front

  What is the difference between secured and unsecured debt?

  Back

  Secured debt is backed by collateral (e.g., a mortgage or auto loan); unsecured debt has no collateral (e.g., credit cards or personal loans).

• 12
  Front

  What is the difference between revolving and installment debt?

  Back

  Revolving debt (e.g., credit cards) has a flexible balance and credit limit reused each month; installment debt (e.g., mortgages) has fixed payments over a set term.

• 13
  Front

  What is the debt avalanche repayment strategy?

  Back

  Paying minimum payments on all debts while directing extra money to the highest-interest debt first, minimizing total interest paid.

• 14
  Front

  What is the debt snowball repayment strategy?

  Back

  Paying off the smallest debt balances first to build momentum, regardless of interest rate, while making minimum payments on larger debts.

• 15
  Front

  What is diversification in investing?

  Back

  Spreading investments across different asset classes, sectors, or geographies to reduce risk, since losses in one area may be offset by gains in another.

• 16
  Front

  What is the difference between stocks and bonds?

  Back

  Stocks represent ownership (equity) in a company with higher growth potential and risk; bonds are debt instruments that pay fixed interest with lower risk.

• 17
  Front

  What is an index fund?

  Back

  A passively managed fund that tracks a market index (e.g., S&P 500), offering broad diversification at low cost.

• 18
  Front

  What is the difference between a Traditional IRA and a Roth IRA?

  Back

  Traditional IRA contributions may be tax-deductible and withdrawals are taxed; Roth IRA contributions are made after-tax and qualified withdrawals are tax-free.

• 19
  Front

  What is a 401(k) employer match and why is it important?

  Back

  An employer contribution that matches a percentage of an employee's 401(k) contributions; it is essentially free money and should be maximized first.

• 20
  Front

  What is the early withdrawal penalty for most retirement accounts in the U.S.?

  Back

  A 10% penalty (plus ordinary income tax for pre-tax accounts) on withdrawals taken before age 59½, with some exceptions.

• 21
  Front

  What is the difference between marginal and effective tax rates?

  Back

  The marginal rate is the rate applied to the last dollar of income (the top bracket); the effective rate is the average rate paid on all income.

• 22
  Front

  What is the difference between a tax deduction and a tax credit?

  Back

  A deduction reduces taxable income; a credit directly reduces the tax owed, making credits generally more valuable dollar-for-dollar.

• 23
  Front

  What is the purpose of an emergency fund and how large should it typically be?

  Back

  It covers unexpected expenses or income loss; the standard recommendation is 3 to 6 months of essential living expenses held in a liquid account.

• 24
  Front

  What is the difference between term life insurance and whole life insurance?

  Back

  Term life provides coverage for a fixed period (e.g., 20 years) at lower cost; whole life provides lifetime coverage and builds cash value, but costs significantly more.