Money Basics
Savings rate, what's left in the budget, simple interest, and matching time periods.
In your head, jot if needed · no calculator why?
Opens at level 9. You're level 1. You can read and practice here now.
the idea
Four habits keep everyday money math honest. Your savings rate is what you save as a share of your take-home pay, the pay that reaches your account. What is left in a budget is pay minus every expense, and it can fall below zero.
Simple interest is the principal (the amount lent) times the yearly rate times the time in years. It never earns interest on interest.
Above all, match the time period before you compare. A month is 1/12 of a year, and a year counts as 52 weeks or 365 days.
techniques
Part over whole
- Put the part on top: what you save.
- Put the whole underneath: your take-home pay.
- Divide, then multiply by 100 for a percent.
worked example
You take home $2,500 a month and save $300 of it. What is your savings rate, as a percent of take-home pay?
- $300 ÷ $2,500 = 0.12.
- 0.12 = 12%.
Answer: 12%
Principal × rate × years
- Write the yearly rate as a decimal: 5% is 0.05.
- Write the time in years. Months go over 12: 6 months is 6/12 = 0.5 of a year.
- Multiply principal × rate × years. That is the interest alone, not the ending total.
worked example
You lend $1,200 for 6 months at simple interest. Assume a rate of 5% per year. How much interest is earned?
- 6 months is 0.5 of a year.
- $1,200 × 0.05 × 0.5 = $30.
Answer: $30
Match the period first
- Month to year: × 12. Year to month: ÷ 12.
- Week to year: × 52. Day to year: × 365.
- Split an awkward amount into parts you can multiply, then add them.
worked example
You spend $4.50 on coffee every day. How much is that per year? (Count 365 days.)
- $4 × 365 = $1,460.
- $0.50 × 365 = $182.50.
- $1,460 + $182.50 = $1,642.50.
Answer: $1,642.50
watch out for
- Dividing take-home pay by savings. The savings rate puts what you save on top.
- Leaving out an expense line when adding up a budget. Tick off each line as you add it.
- Giving the ending total when the question asks for the interest alone.
- Treating 6 months as 6 years, or comparing a monthly price with a yearly one before converting.
practice
Savings rate
worked example
You take home $8,700 a month and save $1,305 of it. What is your savings rate, as a percent of take-home pay?
Answer: 15%
- Savings rate = saved ÷ take-home pay = $1,305 ÷ $8,700 = 0.15 = 15%.
What's left in the budget
worked example
Monthly take-home pay is $4,400. Rent is $1,570, debt payments $530, phone and internet $410, and insurance $690. How much is left? (Use a minus sign if you're short.)
Answer: $1,200.00
- Expenses: $1,570 + $530 + $410 + $690 = $3,200.
- $4,400 − $3,200 = $1,200 left.
Simple interest
worked example
You lend $18,000 for 2 years at simple interest. Assume a rate of 3% per year. How much interest is earned?
Answer: $1,080.00
- Interest = principal × rate × years = $18,000 × 0.03 × 2 = $1,080.
Match the time period
worked example
A meal-kit plan costs $13 a month. What does it cost per year?
Answer: $156.00
- Match the period before comparing: $13 × 12 months = $156 a year.