Chapter 1: Savings
Baby Step 3
3-6 months expenses in savings
How many baby steps are there?
7
Baby Step 7
Build wealth and give
Baby Step 5
College funding
Ben and Arthur illustrate which principle of saving?
Compound interest
Interest on interest
Compound interest
How does compound interest differ from simple interest?
Compound interest is interest on interest while simple interest is only interest made on the initial investment
What was the most important piece of information or concept you learned from this lesson? How will you apply it to your life?
Compound interest. I will put money in the bank and let compound interest do the work for me and build my wealth up really high
Saving is about...
Contentment and emotion
Key to wealth building
Discipline
Amoral
Money is neither good nor bad
Emergency fund goes here
Money market
If it can go wrong, it will; unexpected events
Murphy's law
Why do you need to have $1,000 in the bank before paying off debt?
Murphy's law, something will go wrong
Explain the relationship between having an emergency fund and Murphy's law
With an emergency fund, Murphy's law and unexpected events are not a big issue because an emergency fund covers it
PAC stands for:
Pre-Authorized Checking
Savings is a...
Priority
Baby steps 1 and 3 have to do with...
Saving and emergency fund
For most people, a fully funded emergency fund will be about...
$10,000-$15,000
Baby Step 1
$500-$1,000 in emergency fund
What changes can you make now in your own life based on what you saw in the video? How will these changes help?
I can change the order I use my money to give first, then save, invest, and finally spend. I can also put more money in the bank and allow interest to work for me not against me. This will help save me money and build my wealth
Why do you need an emergency fund at your age?
In case of emergencies like our car breaks down or our phone drops in water
Baby Step 4
Invest 15% of your household income into Roth IRAs and pre-tax retirement plans
Why do you think Dave skips Baby Step 2 in this lesson?
It is more about debt than saving
What are 3 primary savings goals?
Emergencies, purchases, and wealth building
You should save for the following:
Emergency fund, purchases, and wealth building
Dave's 80/20 rule says when it comes to money, 80% is head knowledge and 20% is behavior
False, Dave's 80/20 rule does not say when it comes to money, 80% is head knowledge and 20% is behavior
The correct order for using your money is: pay bills, save, and then give
False, the correct order for using your money is not to pay bills, save, and then give
Your income level greatly affects your savings habit
False, your income level does not greatly affect your savings habit
Jeremy has been out of school for 2 years, has a good job, and recently got a raise. He is excited about investing and always puts part of his check into savings. Although he has $6,500 in debt left to pay, he is making more than the minimum payments and should be debt free in 15 months. Should he continue to save or pay off his debts? Justify your answer
He should pay off his debts unless he has under $1,000 in emergency funds
The following is true about PACs:
Helps build discipline when saving
Baby Step 2
Pay off all debt except the house utilizing the debt snowball
Baby Step 6
Pay off your home early
Melissa is about to get a $200 per month raise. She wants a new television and some furniture. She has $500 in her savings account and figures with her raise she will have the cash to make her purchases easily within a few months. She also has $1,000 in available credit remaining on her credit card and is thinking about using it to buy everything now rather than waiting until she has the money. What would you tell Melissa? Justify your answer
She should wait until she has the money. With interest, she will end up paying more than if she were to wait
Saving money for a purchase and letting the interest work for you rather than against you
Sinking fund
Why do you think the United States has a negative savings rate? How does this relate to your personal savings habits?
The United States spends more than it makes. When making purchases, they do not save for them. If I want something of more value, I will save for it but if it is less expensive, I will just buy it
Interest is money paid to a saver by a financial institution
True, interest is money paid to a saver by a financial institution
The saving habits of Ben and Arthur help to illustrate the principle of compound interest
True, the saving habits of Ben and Arthur help to illustrate the principle of compound interest