Understanding Money and Credit

1. Gross income is income before taxes.
    Yes
    No
   
   Your Answer:
   Correct Answer:Yes
   Reason:
   Gross income is the amount of money you make before any deductions are taken for taxes and other benefits. The amount of money remaining after all deductions are taken is net income, or take-home pay.

2. Setting financial goals and deciding where we spend our money are the least important steps in managing our money.
    Yes
    No
   
   Your Answer:
   Correct Answer:No
   Reason:
   Actually these are the first two steps in the process. To begin managing money, you must first know exactly where you are financially. Taking an honest look at where the money is going gives you a chance to make appropriate financial goals. Without financial goals, there’s no reason not to spend every penny you make.

3. Making only the minimum payment would mean that a person who charged a $1,000 stereo system on their 16.9% APR credit card would be paying almost $750 additional in interest charges to the creditor.
    Yes
    No
   
   Your Answer:
   Correct Answer:Yes
   Reason:
   Paying the minimum is a very costly way to repay debt. By adding just $25 to the minimum payment, the debt can be repaid in 2 years, 3 months, instead of 7 plus years, and only $208 will be paid in interest charges.

4. Balancing your checkbook and recording debit card purchases are critical to financial record keeping.
    Yes
    No
   
   Your Answer:
   Correct Answer:Yes
   Reason:
   Managing your money starts with good record keeping. Balancing your checkbook and keeping up with debit transactions helps you know exactly how much money you have in your account. Incomplete and inaccurate records can lead to costly mistakes and fees.

5. Expenses that usually occur only once or twice a year are referred to as periodic expenses.
    Yes
    No
   
   Your Answer:
   Correct Answer:Yes
   Reason:
   Periodic expenses, such as medical bills, taxes or car repair don't occur every month, and therefore are often left out of monthly budgets. The best way to plan for those periodic or unexpected expenses is to total periodic expenses for the previous year, take a twelfth of that total and set that money aside each month, in a savings program.

6. The best strategy for building savings is to use whatever money remains monthly after all expenses are paid.
    Yes
    No
   
   Your Answer:
   Correct Answer:No
   Reason:
   The best strategy for saving is to "pay yourself first." Saving money should be a priority, not an afterthought.

7. The three options to review if your monthly expenses exceed your monthly income are increasing your income, decreasing your expenses, or doing a combination of the two.
    Yes
    No
   
   Your Answer:
   Correct Answer:Yes
   Reason:
   Increasing income is not always easy to accomplish but something to explore. Decreasing expenses is something everyone can do. To begin to cut back on daily expenditures, take time to track spending for several weeks to a month. Look at areas of excessive spending and try to reduce, or eliminate unnecessary expenses.

8. A debt to income ratio is an indicator of debt load that is calculated by dividing total monthly debt payments (excluding mortgage or rent) by total monthly net income.
    Yes
    No
   
   Your Answer:
   Correct Answer:Yes
   Reason:
   Debt to income ratio is an easy way to determine whether or not you can financially handle additional debt. There is a difference between the amount of credit you can qualify for, and the amount of credit, or debt you can afford.

9. Debt expenses should be no more that 50% of a person's net income in a well balanced financial plan.
    Yes
    No
   
   Your Answer:
   Correct Answer:No
   Reason:
   A debt to income ratio of 50% doesn't leave much money for normal living expenses, not to mention unexpected expenses. When evaluating non-mortgage debt, a percentage between 15% and 20% of monthly take-home pay is generally within an acceptable range.

10. A healthy financial plan suggests keeping an emergency fund in case of job layoffs to be able to take care of living expenses for 1 month.
     Yes
     No
    
    Your Answer:
    Correct Answer:No
    Reason:
    One month's worth of living expenses set aside as an emergency fund is probably not enough, but it's a good start. Set a goal to have the equivalent of at least 3 months worth of living expenses saved for emergences that might arise, such as loss of income.