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Basics Beginner: Building a Budget

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1.
Which of the following is the best example of a variable expense for most people?
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Entertainment. While transportation, food, cleaning, personal care costs, and utility bills may vary slightly from month to month, they will tend to be very close to the average for a year or more, while entertainment costs, which are discretionary, tend to vary much more from month to month.
2.
In a budget, inflows and income are two different things.
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True. Inflows are money that comes from any source, including borrowing, whereas income is money earned.
3.
A budgeting tool that is "read-only" _______ make financial transactions.
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Cannot. "Read-only" means that you can read the data in it, but you cannot use it to transact. This is a safety feature.
4.
A good budget can sometimes allow a month's expenses to exceed that month's income.
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True. A good budget is always balanced, even if some months' expenses exceed income, as long as there are adequate inflows from past or future savings.
5.
If you are using an online budgeting tool from a company that regularly attempts to hack its own software, that is ____.
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Good. As a safety measure, some companies try to hack into their own software to ensure that it is secure.
6.
An inflow of cash from savings to make a purchase is called income.
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False. Income is money earned from work, earned from investments, or received as a gift.
7.
In planning a budget, which is likely to be the largest expense item?
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Housing. On average, housing expenses tend to be 20–35 percent of gross family income.
8.
If you earn $30,000 gross, your budget should be based on that $30,000.
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False. Your budget should be based on your net pay, not your gross pay.
9.
One benefit of keeping a written record of your income and expenses is that it can help you project when you will need additional funds.
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True. A written record will show you when future shortfalls may appear.
10.
Budgeting software can provide financial forecasts for your financial data.
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True. Not all software offers this, however. The ones that do are more advanced and pricey.