Personal Financial Management - Chapter 1

Question 0

Compound interest

Answer 0

Interest paid on interest previously earned

Question 1

Amoral

Answer 1

Lacking morals; neither good nor bad

Question 2

Emergency fund

Answer 2

3-6 months of expenses in daily available cash to be used only in the event of emergency baby step 3

Question 3

Interest rate

Answer 3

Percentage paid to a lender for the use of borrowed money

Question 4

Money market

Answer 4

Invest your emergency fund into this fund

Question 5

Murphy’s law

Answer 5

Anything that can happen, will happen

Question 6

Pre-authorized checking (PAC)

Answer 6

System of automatic payment processing by which bills, deposits, and payments are handled electronically at regular intervals or on a pre-determined schedule

Question 7

Sinking fund

Answer 7

Saving money for a specific purpose to allow interest to work for you rather than against you

Question 8

Key to wealth building?

Answer 8

Discipline

Question 9

For most a fully funded emergency fund would be?

Answer 9

$10,000-$15,000

Question 10

Ben and Arthur illustrate which principle of saving?

Answer 10

Compound interest

Question 11

What should you save for? (3)

Answer 11

Emergency fund
Purchases
Wealth building

Question 12

How many baby steps are there?

Answer 12

7

Question 13

Saving is about? (2)

Answer 13

Emotion and contentment

Question 14

What is true about PACs? (2)

Answer 14

Stands for pre-authorized checking

Helps build discipline when saving

Question 15

Dave’s 80/20 rule says when it comes to money 80% is head knowledge and 20% is behavior

Answer 15

False, it’s 80% behavior, 20% head knowledge

Question 16

Your income level affects your saving habits

Answer 16

False! Discipline affects saving habits

Question 17

What is interest?

Answer 17

Money paid to a saver by a financial institution

Question 18

Correct order for using money? (3)

Answer 18

Save, pay bills, give

Question 19

What are the 7 baby steps to saving? (7)

Answer 19

1. $1000 in emergency fund
2. Pay off debts (“debt snowball”)
3. 3-6 months of expenses in savings
4. Invest 15% of household income into Roth IRA and pre-tax retirement plans
5. College funding
6. Pay off home early
7. Build wealth and give

Question 20

Savings must be a priority so…

Answer 20

Pay yourself first.

Question 21

What is the U.S.’s savings rate?

Answer 21

-.6%

Question 22

Money is

Answer 22

Amoral

Question 23

An emergency fund is NOT… But is… (2)

Answer 23

An investment

Insurance

Question 24

Purchases (2)

Answer 24

Use a sinking fund approach

instead of borrowing to purchase, pay with cash

Question 25

Wealth building (2)

Answer 25

It’s a marathon, not a sprint

Use PACs to build discipline

Question 26

How to calculate compound interest?

Answer 26

FV = PV(1+r/m)^mt

FV = final value
PV = present value 
R = rate of interest (decimal) 
M = # of times per year interest is compounded 
T = # of years it is invested

Question 27

Rate of return

Answer 27

Compound interest works over time and this will make a difference in how large your investments grow