Consumer Ec - Saving Money Test

What does it mean to "pay yourself first"?

Deposit money into your savings account before spending on anything else

How much money should your emergency fund cover?

Enough money for 3-6 months of expenses

What is the benefit of automating your savings account contributions?

Your money will be transferred automatically and guarantees you will be contributing to your savings

What should you base a sinking fund off of?

based on the expected cost or the average of past costs

Why does it make sense to start investing right now?

earlier you start investing, the more time you will have (and time is our best asset)

Compound Interest

interest earned on both the principal amount and any interest already earned

Today's savings accounts do not offer interest rates much higher than 1%. How does this impact the power of compounding?

it will cause you not to save as much money, as not as much money is able to build upon itself

50% for

mandatory expenses

20% for

savings and debt

The previous article and this video have three points of overlap -- retirement, emergency fund, and education. Why do you think it's SO important to save in these 3 categories?

they are the categories that require the most amount of money to spend or save

30% for

wants

This article recommends that 20% of your income is meant for your savings, investments, and payments to reduce debt. What are the potential risks of having all three of these buckets belong in the same category?

you may put too much money into one place, which could cause you to save less money

College Education

- 2021 cost was $9,580 for in state and $27,437 for out of state - 529 for your kids - money grows tax free

Hersom's Tips to Save More Money

- Four banks not one! - Set savings goal - Save first, not last

Good places to save are?

- High-yield savings accounts - money market accounts - saving bonds - CD - Certificate of deposit

What are some emergencies that could cost $400?

- Hospital bills - flat tire - ambulance ride - vet bills

Save For a Vacation Car or Other Big Purchase

- Save up for big purchases - This avoids the extra costs such as interest and fees - On credit you have to pay those costs - Set the goal ahead of time then save up for it

You should what before you spend?

- Save your money - put it into savings first - break it up into your 4 banks - invest first

Save For Irregular or Recurring Expenses

- Set up a sinking fund - Paying taxes is not an emergency

What are the four banks?

- Spending Bank - Saving Bank - Investing Bank - Giving Bank

Save for retirement:

- The sooner you start the less you save later - Money invested in these special accounts has the potential to appreciate value - Rate of return is not guaranteed but historically the gains have all been positive

What is a sinking fund?

- They help you from dipping into your emergency fund - Are money set aside for future, known expenses -- Examples are holidays, car repairs, home improvements, taxes

Save to Maximize Interest Rates

- Where you save matters - Need to save with places that have interest

Why does saving money make you happy?

- contributes to peace of mind, pride, an overall sense of well-being, and independence - provides a safety net, assuring people that everything will be okay

Why is the 50-20-30 rule easy for people to follow, especially those who are new to budgeting and saving?

- easy to follow because it clearly defines where to spend your money and how much to spend - organizing and separating your funds can be easier for people who become overwhelmed with more detailed budgeting methods

Why should you start saving early?

- gives people an advantage, as people's younger years impact the rest of their life - the earlier you save money, the more time it has to grow

Why shouldn't you keep your emergency fund money in your checking account?

- it could make you more tempted to spend that money - creating a separate account is an easier way to access cash

What is the difference between saving and investing?

- saving is the amount of your income that you tuck away for your goals - investing is when you're buying an asset that you believe will generate a return over time

Why do you think they recommend saving 3-6 months of expenses in your emergency fund?

- you need to save as much as you can each month just in case you experience an unexpected expensive emergency (injury, fired, health concerns) -- Save as much as you can you can to get started

What are 3 good ways to save?

1. Pay yourself first 2. Pay cash instead of a credit card 3. Stack up when essentials are on sale

7 Reasons to save your money:

1. Save for your emergency fund 2. Save for retirement 3. Save for a down payment 4. Save to maximize interest rates 5. Save for vacation or a big purchase 6. Save for recurring expenses 7. College Education

How much does Kal Penn recommend you save?

20% of your income

How many Americans cannot cover a $400 emergency?

4 in 10 Americans

Inflation

A continuous rise in the price of goods and services

Which strategy will help you save the most money?

As soon as you receive your paycheck, put a fixed amount or percentage of your money directly into your savings

If you know something is coming you should do what for it?

Prepare

How does the age a person starts saving at impact the amount they can earn in compound interest?

The amount of money you earn builds on itself and adds very quickly over multiple years