Financial Literacy and Personal Finance Flashcards

What is the difference between gross income and net income?

Answer: Gross income is before taxes and deductions; net income is after taxes and deductions

Gross income is the total amount earned before any taxes or deductions are removed, while net income is the amount you actually take home after all deductions.

Which of the following is an example of a fixed expense?

Answer: Monthly rent payment

Fixed expenses remain the same amount each month, such as rent, while variable expenses change depending on usage or choices.

What is the primary purpose of creating a personal budget?

Answer: To track and plan how you spend and save your money

A budget helps you track income and expenses so you can make informed decisions about spending, saving, and reaching financial goals.

According to the 50/30/20 budgeting rule, what percentage of after-tax income should go toward needs?

Answer: 50%

The 50/30/20 rule suggests allocating 50% to needs such as housing and food, 30% to wants, and 20% to savings and debt repayment.

What is an emergency fund?

Answer: Personal savings reserved for unexpected expenses or financial hardship

An emergency fund is personal savings set aside to cover unexpected costs like medical bills, car repairs, or loss of employment.

A pay stub shows $900 in gross pay and $200 in total deductions. What is the net pay?

Answer: $700

Net pay is calculated by subtracting total deductions from gross pay: $900 - $200 = $700.

Which of the following would be considered a variable expense?

Answer: Monthly electricity bill

Electricity bills vary each month based on usage, making them a variable expense unlike fixed costs that remain constant.