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.
