Chapter 2 Savings - Multiple Choice

$400

Using the sinking fund approach, how much do you have to save each month to buy a $4,800 car one year from now? • $300 • $400 • $275 • $500

Spending more money than you make and acquiring debt

What does it mean to have a negative savings rate? • Saving for something that is a want instead of a need • Spending more money than you make and acquiring debt • Having a fully funded emergency fund • Having no savings at all

• All of the above

Which of the following is a reason that people donʹt save money? • They lack discipline • They do not live on a budget • They lack focus • All of the above

• So that your emergency fund savings can earn a lot of interest.

Which of the following is not a reason your emergency fund should be kept in a separate savings account away from your spending money? • So that you do not get your spending and saving money confused. • So that your emergency fund savings can earn a lot of interest. • So that it is clear what money is only to be used for emergencies. • So that it is not too easy to access.

• Have money available to lend to friends

Which of the following is not one of the three basic reasons for saving money? • Emergency fund • Large purchases • Build wealth • Have money available to lend to friends

• Save a $500 emergency fund

Which of the following steps is the First Foundation? • Get out of debt • Save a $500 emergency fund • Build wealth and give • Pay cash for your car

• Your income

Which of these is not a key to saving money? • Your income • Focus • Making saving a habit and a priority • Discipline

• Contentment and emotion

. Saving is about: Foundations in Personal Finance • Contentment and earning more money • Contentment and emotion • Making more money and discipline • Pride and greed

• $500

At your age, a fully funded emergency fund should be: • $100 • $500 • $1,000 • $5,000

• All of the above

For which of the following should you save? • Purchases Foundations in Personal Finance • Emergency fund • Wealth building • All of the above

Sinking Fund

Instead of borrowing money for large purchases, you should set money aside in a _________ over time and pay with cash. • Emergency fund • Credit card fund • Sinking fund • Mortgage fund

• The length of time money is invested matters.

The saving habits of Ben and Arthur best illustrate which principle of saving? • The amount of the initial investment is the key. • The length of time money is invested matters. • Rate of return doesn't matter. • None of the above

Time value of money

This principle suggests that a certain amount of money today has different buying power than the same amount of money in the future. This is due to both the opportunity to earn interest on the money and because inflation will drive prices up, thereby changing the ʺvalueʺ of the money. • Opportunity cost • Interest rate • Time value of money • Inflation

• The purpose of an emergency fund is to set money aside for unexpected financial emergencies and to provide a sense of financial security.

Why is having a fully funded emergency fund so important when it comes to your financial well-being? • As long as you have a good-paying job, you really donʹt need an emergency fund. • The purpose of an emergency fund is to have money set aside for large purchases, like vacations. • The purpose of an emergency fund is to set money aside for unexpected financial emergencies and to provide a sense of financial security. • None of the above

• The emergency fund is not intended to grow wealth.

Why should interest earned not be a factor with your emergency fund? • The emergency fund is not intended to grow wealth. • Inflation can eat up the interest earned. • Interest-bearing accounts at banks earn a high rate of interest, therefore, interest is not a concern. • None of the above