Chapter 2 test Flashcards
Which of the following steps is the First Foundation?
C) Save a $500 emergency fund
Instead of borrowing money for large purchases, you should set money aside in a ________ over time and pay with cash
B) Sinking Fund
What does it mean to have a negative savings rate?
D) Spending more money than you make and acquiring debt
The saving habits of Ben and Arthur best illustrate which principle of saving?
A) The length of time money is invested matters
C) Rate of return matters.
This principle suggests that a certain amount of money today has different buying power than the same amount of money in the future. This is due to both the opportunity to earn interest on the money and because inflation will drive prices up, thereby changing the ʺvalueʺ of the money.
B) Time value of money
For which of the following should you save?
A) Purchases B) Wealth building C) Emergency fund
Using the sinking fund approach, how much do you have to save each month to buy a $4,800 car one year from now?
A) $400
At your age, a fully funded emergency fund should be
A) $500
Which of these is not a key to saving money?
Your income
Which of the following is a reason that people donʹt save money?
A) They lack discipline B) They do not live on a budget C) They lack focus
Which of the following is not one of the three basic reasons for saving money?
C) Have money available to lend to friends
Which of the following is not a reason your emergency fund should be kept in a separate savings account away from your spending money?
D) So that your emergency fund savings can earn a lot of interest.
Why is having a fully funded emergency fund so important when it comes to your financial well-being?
B) The purpose of an emergency fund is to set money aside for unexpected financial
emergencies and to provide a sense of financial security.
Saving is about:
A) Contentment and emotion
Why should interest earned not be a factor with your emergency fund?
C) The emergency fund is not intended to grow wealth.
True or False? The first thing you should save for is your retirement fund.
False
True or False? Your income level greatly affects your saving habits
False
True or False? Americans typically maintain a very high savings rate
False
True or False? You should save money for three basic reasons: emergency fund, purchases and wealth building.
True
True or False? When it comes to saving money, the amount you save is determined by how much you have left at the end of the month once all of your spending is done.
False
True or False? When youʹre older and out of school, youʹll need to grow your emergency fund into a full three to six monthsʹ worth of expenses.
True
True or False? You should keep your emergency fund in the same account as your spending money.
False
True or False? An interest-bearing account is an account that generates interest income on the available balance in the account.
True
True or False? When youʹre in high school, you wonʹt have the same emergency expenses as your parents.
True
True or False? You should hold off on investing for retirement until you have college or other post-secondary education paid for
True
The persistent rise in the cost of goods and services
Inflation
When a person intentionally invests money in a place where it can earn more money
Wealth Building
The five steps to financial success:
Five Foundations
Set up the equation for the Future Value of Money for $800 at 12% for 10 years
FV=800(1+.12)10
Calculate compound interest. Assume interest is compounded annually. $500 at 18% for 4 years
31,292.95
