personal finance chapter 3

The initial amount of money you deposit or invest is called the_____

principal

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! True False

true

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.

easier

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

emergency fund

Debt is a tool to use to make you wealthy. True False

false

Most millionaires make over $100,000 a year. True False

false

Once you're out of school, have started your career, and have zero debt, your emergency fund should have _________. 3-6 months of income 3-6 months of living expenses $3,000 $5,000

3-6 months of living expenses

"Rate of return" is a phrase used to describe what aspect of investing? A. Compound growth B. Accrued interest C. Risk and return ratio D. Inflation

A

Compound interest is earned at a fixed rate, while ________ is an average based on an investment's past performance. The principal Interest rate The Fifth Foundation Compound growth

compound growth

The only place you should keep your emergency fund money is.. A savings account or money market account. A safe in your bedroom A Roth IRA An envelope in a safe place

A savings account or money market account.

The top three careers reported among millionaires were _____________, _____________, and ___________. Pro athletes; bankers; CEOs Lawyers; surgeons; accountants Celebrities; developers; writers Accountants; engineers; teachers

Accountants; engineers; teachers

The amount of interest charged on a debt but not yet collected is called... Accrued interest Interest rate Same-as-cash Growth rate

Accrued interest

You'll have less freedom with your money if you . . . Invest in the stock market Are paying for things in your past Put money in a bank account Make less than $35,000

Are paying for things in your past

What two elements do you need to build wealth through compound growth? A. An inheritance and a lawyer B. Money invested and time C. Money invested and good stocks D. Time and a wealthy relative

B

When you make a purchase but later wish you hadn't done so, you experience . . . A. Selfishness B. Buyer's remorse C. Impulse purchase D. Time value

B

The purpose of an emergency fund is to... Be able to cover an unexpected expense with cash and protect you from having to pile up debt when something goes wrong. Have some extra money in a checking account in case you need to transfer some to your spending categories. Teach you how to invest in growth stock mutual funds. Teach you discipline—saving is purely a good exercise in self-control.

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

Why do some accounts, like savings accounts at your local bank, earn interest? Because you deposit money, adding to your principal each month Because the bank pays you to use your money Because of inflation Because those accounts always have great interest rates

Because of inflation

Why do stores rarely advertise the full price of big purchases like smartphones? They are trying to cheat you. They are trying to keep their prices competitive. Hiding the full price allows stores to change their pricing as the market fluctuates. By showing you only the monthly payment, they make the product seem affordable.

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

In The Five Foundations, what is The Third Foundation? A. Pay cash for college B. Save a $500 emergency fund C. Pay cash for your car D. Get out and stay out of debt

C

Which of the following would be considered an emergency fund expense? A. Lost cell phone B. Video game sale C. Blown car tire D. Sale on shoes

C

Which of the following questions helps you determine if something is actually an emergency expense? A. Is it urgent? B. Is it unexpected? C. Is it necessary? D. All of the above

D

The first step you should take when you want to make a large purchase is . . . Ask your parents to loan you the money with low interest Get a new credit card Decide how much you'll need to save and the time frame you want to save it in Sell something and use the proceeds

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

The main reasons for saving your hard-earned money are... Investing, indulging, and influencing Emergencies, large purchases, and wealth building Buying gifts, donating to charities, and building up a college fund for your kids Paying for your dream home, buying your dream car, and going on your dream vacation

Emergencies, large purchases, and wealth building

47% of Americans have less than $1,000 saved for a(n) _______. Emergency Car Retirement fund New smartphone

Emergency

One of the main reasons we build wealth is so that we can . . . Give to those in need Spend it all on ourselves Impress the people around us Prove that we are successful

Give to those in need

REVIEW QUESTION Why is it important to make an emergency fund your first financial priority?

If you have an emergency fund, you can tap into it to cover the cost of everyday expenses, like utility bills, groceries, and insurance payments, while you're unemployed. Starting an emergency fund also gives you the freedom to leave a job you dislike by choice, without having to secure a new job first.

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

Is it unexpected, is it necessary, is it urgent?

Think back to jack and Blake. Explain how jack ended up with more money?

Jack ended up with more money because he started investing earlier on and compound growth took over

If you really want to save money, you've got to . . .Fly economy class Live on less than you make Invest in a Roth IRA Have a financial advisor

Live on less than you make

What is the Third Foundation? Pay cash for your car. Pay cash for college. Save for retirement. Create a monthly budget.

Pay cash for your car.

Once you have a $500 emergency fund, you should . . . Start putting it toward debt Save it until you have an emergency Invest it in the stock market to grow your money Use the money to pay for health insurance

Save it until you have an emergency

Explain why making car payments is such a poor financial decision?

The less money you spend per month allows you to save more money so you can save and eventually pay for a car in cash for cheaper.

Which principle says that a certain amount of money today is worth more than the same amount in the future? Inflation Rate of return The time value of money Principal interest

The time value of money

What is the goal of an emergency fund? To pay for large purchases To save for your children's college expenses To have cash on hand for unexpected events To pay for health insurance

To have cash on hand for unexpected events

It's not IF an emergency will happen, but _______. How Where Why When

When

How does Murphy's law apply to saving moneu

You can budget to account for anything which could go wrong. In your emergency fund.

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

You can save so you don't have to stress over money in the long run.

The First Foundation is: Save ___

a $500 emergency fund

If you make a late credit payment, you might see the lender add ____

a accrued interest to what you owe

____ is the average rate of growth for an investment over a period of time.

compound growth

The price of goods and services increases over time due to ____

inflation

______deals—such as 90-days-same-as-cash—are often used to get you to buy higher-priced items.

interest rate

When talking about saving money, Anthony ONeal says, "Start paying yourself and_____

investing in your future

You save for a(n) _____ when you don't have the cash to buy it now.

large purchase

An investment's _____ is its percentage gain or loss over time.

rate of return

The _____ refers to the earning potential of money.

time value of moeny

The three reasons to save money are ___

to build emergency fund pay cash for purchase to build wealth