Financial Literacy chapter 3

Emergency

47% of Americans have less than $1,000 saved for a(n) _______.

Compound growth (double check)

Compound interest is earned at a fixed rate, while ________ is an average based on an investment's past performance.

False

Debt is a tool to use to make you wealthy.

It is a poor decision because I would be losing money in interest while paying for that car. Another reason would be is that in breaking it up in car payments the seller makes it seem more affordable. I would be better off saving my money to pay cash

Explain why making payments on a car is such a poor financial decision.

This one is common sense: If I don't save money in a emergency fund I can fall in with the majority of Americans and live paycheck to paycheck. Another reason would be going into debt when an emergency occurs like a flat tire. If I were to have irregular income and not save money on my bigger checks then I would have to use a credit card and being to drown in credit card debt.

How does Murphy's Law ("anything that can go wrong will go wrong") apply to saving money?

PUT IN YOUR OWN WORDS, basically planning and saving go hand in hand for wrath building. Planing for my future will help me see the up coming expenses I have ahead and plan accordingly. When I go to build my wealth I need to be able to set aside the same amount of money each month for ten years.

How does planning and saving for your future help you build wealth?

True

If people saved the equivalent of a car payment each month for a year or two (instead of spending it on payments and interest), they could have enough money to buy a car with cash for much cheaper!

Live on less than you make

If you really want to save money, you've got to . . .

False

In order to outpace inflation when investing, your investments need to have a lower rate of return than the rate of inflation.

When

It's not IF an emergency will happen, but _______.

False

Most millionaires make over $100,000 a year.

Save it until you have an emergency

Once you have a $500 emergency fund, you should . . .

3-6 months of living expenses

Once you're out of school, have started your career, and have zero debt, your emergency fund should have _________.

Give to those in need

One of the main reasons we build wealth is so that we can . . .

Accrued interest

The amount of interest charged on a debt but not yet collected is called...

Once you're out of college, living debt-free, and have 3-6 months of living expenses saved

The best way to build wealth is to start investing early. You should start investing money . . .

Decide how much you'll need to save and the time frame you want to save it in

The first step you should take when you want to make a large purchase is . . .

How quickly your money will grow over time

The interest rate on a savings account determines . . .

Emergencies, large purchases, and wealth building

The main reasons for saving your hard-earned money are...

A savings account or money market account.

The only place you should keep your emergency fund money is..

Be able to cover an unexpected expense with cash and protect you from having to pile up debt when something goes wrong.

The purpose of an emergency fund is to..

Accountants; engineers; teachers

The top three careers reported among millionaires were _____________, _____________, and ___________.

Jack ended up with more money because he started investing earlier, whereas Blake didn't invest until his 30s and never caught up. Compound growth of money takes time the time the more money.

Think back to the story of Jack and Blake. Explain how Jack ended up with more money in his investment account by the time he retired, when Blake invested more money.

Essay question basically saving is for emergencies and fun things like vaccination, while investing will grow your growth like investing into a compound interest account.

What are the main differences between saving and investing?

1. 1. Is it necessary , 2. Is it urgent, 3. Is it unexpected

What are three questions to ask yourself before you spend your emergency fund?

Pay cash for your car

What is the Third Foundation?

To have cash on hand for unexpected events

What is the goal of an emergency fund?

Your car battery died

Which of these would count as a legitimate reason to use your emergency fund?

Time value of money

Which principle says that a certain amount of money today is worth more than the same amount in the future?

Consistently investing money and patience to give it time to grow

Which two habits are the most important for building wealth and becoming a millionaire?

Easier

While saving money isn't easy at first, it will make your life a lot _______ in the future if you make it a habit now.

Because the bank pays you to use your money

Why do some accounts, like savings accounts at your local bank, earn interest?

By showing you only the monthly payment, they make the product seem affordable.

Why do stores rarely advertise the full price of big purchases like smartphones?

In your own words this is an essay question. I should avoid zero percent interest rates because they make things seem more affordable. If I were to miss one payment by a day then they would be able to charge me all the interest that I accumulated over that time period. I would be better off to save the money before buying a new phone so I wouldn't get sucked into interest debt.

Why should you avoid interest rate deals like zero-percent interest?

True

You should budget in this order: giving, savings, spending.

Are paying fo things in the past

You'll have less freedom with your money if you . . .

Compound growth

_______ is a millionaire's best friend.