Personal Finance: Essential Money Skills
Budgeting, saving, debt management, and financial planning fundamentals.
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What does the 50/30/20 rule suggest for budget allocation?
It suggests allocating 50% of income to needs, 30% to wants, and 20% to savings and debt repayment.
What is the core principle of zero-based budgeting?
Every dollar of income is assigned a specific purpose so that total income minus total expenses equals zero.
How does the envelope system help control spending?
It uses physical cash placed in labeled envelopes for different categories to prevent overspending once the cash is gone.
What is the generally recommended size for an emergency fund?
Three to six months of essential living expenses.
How does the debt snowball method prioritize payments?
It focuses on paying off the smallest debt balances first to build psychological momentum.
How does the debt avalanche method prioritize payments?
It focuses on paying off debts with the highest interest rates first to minimize total interest paid.
What distinguishes 'good debt' from 'bad debt'?
Good debt is an investment in something that grows in value or generates income, while bad debt is used for depreciating assets or high-interest consumer goods.
What are the five main components of a FICO credit score?
Payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%), and credit mix (10%).
What is the benefit of becoming an authorized user on someone else's credit card?
It allows you to build a credit history based on the primary account holder's positive behavior without being legally responsible for the debt.
What is the primary advantage of a High-Yield Savings Account (HYSA) over a traditional savings account?
It offers a significantly higher interest rate (APY), allowing your money to grow faster while remaining liquid.
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How many flashcards are in this Personal Finance: Essential Money Skills deck?
This deck contains 20 flashcards with a mix of difficulty levels: 6 easy, 10 medium, and 4 hard cards.
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