Flashcard: Chapter 5 & 6

What is the 50/30/20 budgeting rule?

The 50/30/20 rule suggests allocating 50% of income to needs, 30% to wants, and 20% to savings or debt repayment.

What is zero-based budgeting?

Zero-based budgeting requires assigning every dollar earned to a specific expense, savings, or debt category, ensuring no unallocated funds.

What is the purpose of an emergency fund?

An emergency fund provides financial security by covering unexpected expenses, such as medical emergencies or car repairs, without relying on debt.

What are fixed expenses?

Fixed expenses are recurring costs that remain constant each month, such as rent, mortgage payments, and insurance premiums.

What are variable expenses?

Variable expenses fluctuate based on usage, such as groceries, entertainment, and utility bills, making them adaptable in a budget.

What are discretionary expenses?

Discretionary expenses are non-essential spending, such as eating out, entertainment, and luxury purchases, which can be reduced if necessary.

How does inflation impact budgeting?

Inflation reduces purchasing power, increasing costs for goods and services, necessitating budget adjustments to maintain financial stability.

What is envelope budgeting?

Envelope budgeting involves allocating cash into labeled envelopes for different spending categories, preventing overspending in each category.

Why should budgets be revised over time?

Budgets should be adjusted to reflect changes in income, expenses, financial goals, and unexpected life events.

What is the difference between saving and investing?

Saving involves setting aside money in low-risk accounts for short-term goals, while investing aims to grow wealth over time with potential risks.

What factors influence consumer decisions?

Consumer decisions are influenced by price, personal preferences, product alternatives, societal impacts, and advertising strategies.

What is the role of pre-purchase research?

Pre-purchase research helps consumers compare options, read reviews, and make informed choices, preventing impulse purchases.

How do retailers use pricing strategies?

Retailers use discounts, BOGO offers, installment pricing, and perceived value strategies to influence consumer buying decisions.

What are direct and indirect costs of purchases?

Direct costs include the product's price and taxes, while indirect costs include shipping fees, maintenance, and long-term ownership expenses.

How does inflation affect consumer spending?

Inflation decreases purchasing power, making goods and services more expensive, prompting consumers to prioritize essential expenses.

What are the benefits of government consumer protection agencies?

Government agencies, such as the SEC and FDIC, regulate financial markets and protect consumers from fraud and unfair practices.

What are some social media marketing techniques?

Businesses use influencer partnerships, targeted ads, and limited-time offers to encourage consumer spending on social media platforms.

Why is it important to evaluate competing products?

Comparing competing products helps consumers find the best value by considering features, quality, price, and long-term benefits.

What is the impact of consumer protection laws?

Consumer protection laws ensure that products meet advertised standards and allow consumers to seek refunds or compensation for faulty goods.

How does negotiation impact consumer purchases?

Negotiation can lead to lower prices or better terms, especially in markets where bargaining is common, enhancing consumer savings.

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