Personal Finance Quiz: Saving

Why is an emergency fund so important?

An emergency fund insures against life's unexpected expenses. Having a robust emergency fund gives you peace of mind. No one wants to live one paycheck away from not being able to pay the rent or one car breakdown away from not being able to get to work. It also gives you some freedom.

What is a Online savings account?

An online savings account is a savings account managed and funded primarily on the Internet.

What are the four main types of savings accounts to select from?

- Basic savings accounts. -Online savings accounts. -Money market accounts. -Certificates of deposit (CDs)

What are good saving strategies?

- Set saving goals - Save first, not Last! -Cut your expenses -When you do spend, be a smart shopper.

How are checking and savings accounts different?

A checking account is a bank account you can write checks from, or access several other ways, which tends to make it your go-to, daily transaction bank account. A savings account is where you stash funds that you aren't ready to use yet, often with the goal of accumulating more.

Why can it sometimes be challenging to save money?

By not starting to track your spending, saving becomes quite difficult to do because you don't actually know where all your money is going and are completely lost.

How does compound interest help you reach your saving goals?

Compound interest will make a deposit or loan grow at a faster rate than simple interest. It's because of this that your wealth can grow exponentially through compound interest, and why the idea of compounding returns is like putting your money to work for you.

How does living paycheck to paycheck influence your decision making and lifestyle?

Individuals living paycheck to paycheck have to make extremely tough decisions regarding their lifestyle and morals.

How does inflation impact savings?

Inflation impacts savings in a negative way as it lowers the purchasing power of the money individuals set aside. Investing this money is probably a great idea to avoid inflation.

Why is it important to start investing for retirement early?

It is important to begin to invest in retirement early, because the earlier you invest the more the interest will compound, the more you will make.

How are saving and investing different?

Saving is where you tuck away money for near-term goals where safety is your main priority ex (upcoming vacation). While when you invest you are buying an asset that you believe will generate a return over time, mainly for long-term goals.

How much should I save?

There is not an exact amount you should save, it is more about opportunity cost and the trade offs. But, if you really need to know, nearly 20% of your income to savings.

Define the 50-20-30 strat.

This tactic follows the following rules: 1. 50% of income goes to living essentials (Such as rent and groceries 2. 20% of income goes to financial goals such as paying back debt, savings, and investments. 3. 30% of income should be used as flexible spending, money used on movies and traveling

What features should you consider when choosing a savings account?

You should consider the savings account insurance, fees, and interest rates.

What is a certificate of deposit?

a certificate issued by a bank to a person depositing money for a specified length of time.

What is a money market account?

a type of savings that pays high interest and allows you to write checks against the deposited money

What is a basic savings acoount?

is a Savings Account that does not have a minimum balance. ... The bank allows a certain number of deposits and withdrawals in the month that are free of cost.

Define the Pay-yourself-first strat.

is a personal finance strategy of increased and consistent savings and investment while also promoting frugality. The goal is to make sure that enough income is first saved or invested before monthly expenses or discretionary purchases are made.