unit 2: savings

Question 1

compound interest

Answer 1

interest paid on interest previously earned; credited daily, monthly, quarterly, or semiannually

Question 2

emergency fund

Answer 2

$500 in readily available cash to be used only in the event of an emergency. 3 to 6 months expenses as an adult

Question 3

interest rate

Answer 3

percentage paid to a lender for the use of borrowed money; percentage earned on invested principal

Question 4

five foundations

Answer 4

the five steps to financial success

Question 5

sinking fund

Answer 5

saving money over time for a large purchase

Question 6

list the five foundations of personal finance:

Answer 6

1. save $500 emergency fund
2. get out of debt
3. pay cash for your car
4. pay cash for college
5. build wealth and give

Question 7

where should you keep your emergency fund?

Answer 7

open a separate savings account for your emergency fund

Question 8

the 3 basic reasons to save money:

Answer 8

1. emergency fund
   > insurance for when the unexpected happens
2. purchases
   > instead of borrowing to purchase, pay cash
3. build wealth
   > wealth is a marathon, not a sprint; DISCIPLINE

Question 9

what is the key ingredient in building wealth?

Answer 9

discipline

Question 10

what’s the formula for compounding interest?

Answer 10

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

Question 11

explain each part of the compounding interest formula:

Answer 11

FV- future value
PV- present value
r- annual rate of interest as a decimal
m- # of times per year the interest is compounded
t- # of years you leave it invested