International Baccalaureate (IB) Practice Exam

How should one evaluate their financial health over the past year?

1. By reviewing monthly expenses

2. Through a budget summary

3. By calculating total net worth

4. By comparing income to fixed expenses

The correct answer is: Through a budget summary

Evaluating financial health involves assessing various components of one’s financial situation to gain a clear understanding of overall stability and performance. A budget summary is particularly effective for this purpose because it provides a comprehensive overview of income, expenses, savings, and investments over a specific period, such as the past year. A budget summary allows individuals to track their spending habits, identify areas of overspending, and recognize trends in their financial behavior. By summarizing this data, one can evaluate whether financial goals were met, how well income covered expenses, and how much was allocated towards savings or investments. This holistic view is essential in making informed financial decisions moving forward. While reviewing monthly expenses, calculating total net worth, and comparing income to fixed expenses are all valuable practices in personal finance, they often focus on specific aspects rather than presenting an all-encompassing picture. For instance, monthly expenses may only reflect a snapshot of spending, net worth offers insight into assets versus liabilities but not cash flow, and comparing income to fixed expenses does not consider variable expenses. Therefore, the budget summary stands out as the best method for evaluating one’s financial health over the entire year.