Personal Finance: Fill in the Blank
Fill in the Blank
19 questions
Business & Economics > Personal Finance
by Katie Valentine
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Fill in the Blank (19)
Question 1
A detailed spending plan that tracks income and expenses over a period is known as a personal budget.
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budget
A budget helps individuals manage their money by allocating funds to various categories and monitoring their financial activity.
Question 2
A high credit score typically indicates a lower risk to lenders and can result in better interest rates on loans.
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credit
A credit score is a numerical expression based on a level analysis of a person's credit files, representing their creditworthiness.
Question 3
When interest is earned not only on the initial principal but also on the accumulated interest from previous periods, it is called compound interest.
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compound
Compound interest allows investments to grow at an accelerating rate because earnings themselves earn interest.
Question 4
Financial experts often recommend having an emergency fund covering three to six months of living expenses readily available for unexpected costs.
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emergency
An emergency fund provides a financial safety net for unforeseen events like job loss, medical emergencies, or major home repairs.
Question 5
Spreading investments across various asset classes to reduce overall risk is a strategy known as diversification.
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diversification
Diversification aims to minimize risk by ensuring that a poor performance in one investment does not severely impact the entire portfolio.
Question 6
The regular payment made by an individual to an insurance company in exchange for coverage is called a premium.
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premium
A premium is the cost of an insurance policy, paid periodically to keep the coverage active.
Question 7
In a progressive tax system, individuals with higher incomes pay a larger percentage of their income in taxes.
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progressive
A progressive tax system aims to distribute the tax burden more equitably by taxing higher earners at a higher rate.
Question 8
The process of gradually paying off a debt over time through a series of fixed payments is known as amortization.
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amortization
Amortization schedules detail how each payment is split between principal and interest over the life of a loan.
Question 9
Expenses like rent or mortgage payments that remain constant each month are considered fixed expenses.
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fixed
Fixed expenses are predictable and do not change significantly from month to month, making them easier to budget for.
Question 10
A stock represents a share of ownership in a company and entitles the holder to a portion of the company's assets and earnings.
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stock
Stocks are a common investment vehicle allowing investors to participate in the growth and profitability of publicly traded companies.
Question 11
The original sum of money borrowed in a loan, before any interest is added, is referred to as the principal.
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principal
The principal amount is the foundation upon which interest calculations are based and is the core amount that must be repaid.
Question 12
The amount of money an insured person must pay out-of-pocket before their insurance coverage begins to pay is called the deductible.
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deductible
A deductible is a common feature of many insurance policies, requiring the policyholder to bear a portion of the initial costs.
Question 13
Amounts subtracted directly from the tax owed, rather than from taxable income, are known as tax credits.
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credits
Tax credits are more valuable than deductions because they reduce the tax liability dollar-for-dollar.
Question 14
A Roth IRA is a retirement savings plan where contributions are made with after-tax dollars, and qualified withdrawals in retirement are tax-free.
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IRA
Roth IRAs offer tax-free growth and withdrawals in retirement, making them attractive for long-term savings.
Question 15
The annual percentage rate, or APR, represents the true yearly cost of borrowing money, including interest and other fees.
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APR
APR provides a standardized way to compare the cost of different loans and credit products.
Question 16
The 50/30/20 rule of thumb suggests allocating 20% of after-tax income to savings and debt repayment.
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savings
The 50/30/20 rule is a popular budgeting guideline that allocates income to needs, wants, and financial goals.
Question 17
Life insurance provides a financial payout to designated beneficiaries upon the death of the insured individual.
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Life
Life insurance is designed to provide financial security for dependents after the policyholder's passing.
Question 18
A bond is a type of loan made by an investor to a borrower, typically a government or corporation, that pays interest over a set period.
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bond
Bonds are considered less risky than stocks and provide a fixed income stream to investors.
Question 19
The portion of income that is subject to taxation after all deductions and exemptions have been applied is called taxable income.
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taxable
Taxable income is the base figure used to calculate an individual's income tax liability.
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