Personal Finance Study Guide 3

If you invest $1,000 at 12% interest, how much money will be in the account after two years, compounded annually?

$1,254.40

Using the sinking fund approach, how much do you have to save to buy a $5,000 car next year?

$416.66 a month into savings

How much money should you have in your emergency fund if you are working on Baby Step 2 (pay off all debt)?

$500 or $1000, depending on your current income

Baby Step 1

$500/$1,000 in an emergency fund

A fully funded emergency fun is ____ months of expenses.

3-6

For which of the following should you save? A. Wealth building B. Purchases C. Emergency fund D. All answers are correct

All answers are correct

Hannah is about to get a raise at work that will add $200 to her monthly paycheck. She wants to buy a new car to replace the four-year-old car she is driving. She has $1,000 in her emergency fund and a credit card balance of $650. If she trades in her car and buys a new one, her current payment will only increase by $75. She is leaning toward doing this because she would still have $125 extra per month. What would Dave say? (Remember, Dave always gives a reason with his advice.) (Select all answers that apply.) A. Hannah should be able to continue to save and build wealth if she decides to take out a loan for a new car. B. Hannah could buy a new car when she has saved a down payment for a new car. C. Hannah needs to pay off her current car and keep driving it until she saves enough money to pay cash for a used car. D. Hannah should be aware of the fact that new cars lose 70% of their value in the first four years E. Hannah needs to pay off her credit card before she does anything.

C. Hannah needs to pay off her current car and keep driving it until she saves enough money to pay cash for a used car. D. Hannah should be aware of the fact that new cars lose 70% of their value in the first four years. E. Hannah needs to pay off her credit card before she does anything.

Savings is about

Contentment and emotion

The emergency fund is not a big ___.

Earner

Pay yourself ___.

First

What is the next step after you have a fully funded emergency fund?

Invest 15% of your income into Roth IRAs and pre-tax retirement plans

Place your emergency fund in this type of account

Money Market

___ says that whatever can go wrong will go wrong.

Murphy's Law

The typical American has a ____ savings rate.

Negative

Saving must become a ___.

Priority

The percentage by which your money grows is called the ___.

Rate of Return

A sinking fund approach means

Saving and paying cash

What is true about the concept of saving

Saving must become a priority

Use the ___ approach instead of borrowing to purchase things.

Sinking Fund

Which is true about a one-time investment for 40 years?

The annual interest rate does matter when making a one time investment.

When is Murphy's Law most likely to occur

When you are unprepared for unexpected events that occur in your life

Which statement is true? A. People spend more money when they pay with cash. B. When you pay with cash, you can almost always negotiate a better deal. C. Using a credit card is safer than carrying cash around. D. When you pay with cash, it is hard to negotiate a deal because you didn't use their credit.

When you pay with cash, you can almost always negotiate a better deal.