Exam Flashcards
What is a system by which goods and services are produced and distributed?
Economy
Your financial planning should begin with a what?
Budget
Adults should have a fully funded emergency fund of expenses for how long?
3-6 months
What is the key ingredient when it comes to wealth building?
Discipline
What mathematical explosion makes wealth building possible?
Compound interest
How often should you prepare a budget?
At least once a month
What does NSF stand for?
Non-sufficient funds
What is another term for a written cash flow plan?
Budget
What is meant by “overdraft”?
When a purchase is made that makes the bank account value go below zero
What are the four walls (priorities in budgeting)?
- Food/Clothing
- Utilities
- Shelter
- Transportation
What three categories should you use to asses your financial situation?
- Assets
- Income
- Liabilities
List three reasons people save money
- Wealth building
- Purchases
- Emergency fund
What is the difference between an investment and insurance?
Investments make money, and insurance protects money
Is your emergency fund an investment or insurance?
Insurance
Describe a sinking fund and its purpose
A sinking fund is used for setting money aside for specific future purchases, which are often more expensive. This prevents you from going into debt when making large purchases and financing unnecessarily
Define “inflation.” How does it affect your emergency fund?
Inflation is the steady rise in cost of goods and services. If the dollar is worth less, you may have to save more money in the emergency fund in order to have 3-6 months’ worth of expenses.
Explain what is meant by “reconcile” as it relates to finances.
Reconciling involves making sure your bank account agrees with what you’ve spent over a period of time
What is sometimes mistakenly referred to as “good debt”?
Home loans and student loans
Who is the number one target of credit card companies today?
Teenagers
Why are “cash advance” and “payday lending” companies so dangerous?
They have dangerously high interest rates
What is the most expensive way to finance and operate a car?
Leasing
What is the best way to minimize the money lost on things that go down in value?
Buy slightly used
You should never take out a mortgage for more than how many years according to Ramsey?
15
What is your largest wealth-building tool?
Your income
What does APR stand for?
Annual Percentage Rate
What is meant by “depreciation”?
An item goes down in value as time passes
What is meant by the term “loan term”?
The length of time that a loan is in effect
What is the only thing you can do with a credit card that you can’t do with a debit card?
Go into debt
What is the largest purchase most consumers make that goes down in value?
A car
What word refers to buying an item with credit and paying over time?
Financing
Why is it a bad idea to buy something with a credit card with the intention of paying it off when the bill arrives?
- You never know your future financial situation: anything could happen
- You spend 12-18% more with plastic than you would with cash
List two forms of “free money” to finance a college education
- Grants
2. Scholarships
Is co-signing a loan for a friend a food way to strengthen the relationship?
No
Do you need a credit-card to rent a car or purchase something online?
No
How much debt are the victims of identity theft expected to pay?
None
What does ARM stand for?
Adjustable Mortgage Rate
Why is an ARM unwise?
It usually has a low starting interest rate, but they will usually rise
Explain the “debt snowball”
Pay minimum monthly payments on all debt except for the smallest one, which should be attacked intensely. Repeat as smallest debts are paid off
What goes up as the risk of an investment goes up?
Return
Under what circumstance is it wise to borrow money to make an investment?
Never
Under what circumstances is it okay to stretch the truth in order to get a bargain?
Never
Jesus said “let your yes be yes…” Anything other than such honesty comes from whom?
The evil one
What makes a “mutual fund” mutual?
People pool their money from several different places
What is the advantage of a Roth IRA as opposed to a standard IRA?
Roth IRA is after-tax money
An “annuity” is a savings account sold by what kind of institution?
Insurance company
Dave Ramsey recommends that you invest no more than what percentage of your entire investment money in a single stock?
10%
What word refers to what a city, etc. might sell to finance a public project?
Bonds
What principle lowers your risk when investing?
Diversification
Under what circumstance do you need life insurance?
When you have people who depend on your income
What is the purpose of insurance?
To transfer risk
Dave Ramsey recommends that you buy term insurance rather than cash-value insurance. What does he say you should do with the money you save?
Invest it
To what does the word “integrity” refer?
A person’s morals and honesty
Why do you need to make more than 6% interest on an investment?
Inflation and taxes are 6%- you must make more than breaking even on your investment
What is a list of your investments called?
Portfolio
What is a retirement savings plan offered to most corporations?
401k
What is a retirement plan offered by nonprofit organizations?
403b
What is deferred compensation offered to government employees?
457
What is a pool of money managed by an investment company and invested in multiple companies?
Mutual fund
What is a tax-deferred arrangement for individuals with earned income?
IRA
What is the amount of money you pay at the time of the visit to a doctor called?
co-payment
What is the total amount of money you must pay in a year before the insurance company begins to pay!
Deductible
What is the amount of money you pay on a regular basis for insurance coverage?
Premium
What is the purpose of the Federal income tax?
To pay for government services
What does FICA on your pay stub represent?
Money going towards Social Security and Medicare
What is the primary tax on wealth?
Property tax
What kind of tax is paid by anyone who earns an income called?
Income tax
What kind of tax is paid by anyone who owns land, a home, or commercial real estate?
Property tax
What does IRS stand for?
Internal Revenue Service
What do we mean when we say something is “tax deductible”?
Money you don’t have to pay taxes on or report as income
When you make a retail purchase you pay a tax. What is this tax called?
Sales tax
What is the process by which we “market” ourselves to others?
Personal branding
What means “love of humanity”?
Philanthropy
What is the meaning and derivation of the word vocation?
Vocation means career. Vocation comes from the Latin word “vocare,” which means calling
What is gross pay?
Pay before deductions
What is net pay?
Pay after deductions
What are the Five Foundations?
- $500 Emergency Fund
- Get out of debt
- Pay cash for your car
- Pay cash for college
- Build wealth and give
