Ch 1- Savings Flashcards
Define amoral
has no morals
Define baby steps
the 7 steps to a healthy financial plan
Define compound interest
interest paid on interest previously earned
Define emergency fund
3-6 months of expenses in readily available cash for emergencies
Define interest rate.
percentage paid to a lender for the use of borrowed money
Define money market
mutual fund that seeks to maintain a stable share price to earn current income by investing in interest
Define Murphy’s Law.
anything that can happen will happen
Define Pre-Authorized Checking (PAC).
system of automatic payment processing
Define priority
level of high importance or urgency
Define sinking fund.
saving money in order to make interest work for you not against you
For most people a fully-funded emergency fund will be about…?
$10,000-$15,000
What are 3 reasons you should save money?
emergency fund, purchases, wealth building
How many baby steps are there?
7
What is saving about?
contentment & emotion
What does Pre-Authorized Checking (PAC) do?
helps build discipline when saving
What does Dave’s 80/20 rule say?
when it comes to money, 80% is behavior and 20% is head knowledge
What is the correct order for using your money?
save, pay bills, give
What is the formula for calculating interest?
Present Value(1+r/m)^mt
r=annual interest rate (as a decimal)
m= # of times money is compounded
t=# of years invested
How does compound interest differ from simple interest?
compound- interest on interest
simple- interest only on value invested
What is the United States’ savings rate?
-0.6%
What country has the highest savings rate?
France
Where is a good place to keep your emergency fund?
money market
What is the key ingredient when it comes to wealth building?
discipline
List 2 things that are a key for saving in general.
discipline and focused emotion
What are the 7 baby steps?
1) $1,000 in emergency fund
2) pay off all debt except house
3) 3-6 months in emergency fund
4) invest 15% of house into Roth IRAs and pre-tax retirement plans
5) college funding
6) pay off home early
7) build wealth and give!
