Chapter 1 Savings

A fully funded emergency fund is _______ months of expenses.

3-6

A sinking fund approach means: a. Saving and paying cash b. Buying with credit, getting a low interest rate d. 90 days same-as-cash

A

Which is not a key to saving money? a. Your income b. Discipline c. Focus

A

Which is the correct order of priorities for your money? a. Give, save, pay bills b. Pay bills, save, give c. Save, pay bills, give

A

A good way to build discipline and get into the habit of saving is: a. Pre-authorized checking b. Avoid daily expenses such as coffee c. Always pack a lunch and save the cost of eating out.

B

For most people, (excluding students) a fully funded emergency fund will be about: a. $1000 b. $3,000-$5,000 c. $5,000-$10,000

B

What is the most sensible way to buy a $4,000 car? a. Put a down payment of $500 and use 90 days same-as-cash to pay the balance. b. Use the sinking fund approach and save $400 a month for ten months. Shop around for the best interest rate before taking out a $4000 loan.

B

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.

B

How much money should Lisa and Joe have in their emergency fund if they have a $3000 credit card bill and a mortagage? a. 3-6 months of expenses b. 10% of their credit card balance c. $1000

C

How much money should you have in your emergency fund if you are working on Baby Step 2. a. 15% of your household income b. 3-6 months of expenses c. $500 or $1000 depending on your current income.

C

Savings is about: a. Making more money and discipline b. Pride and greed c. Emotion and contentment

C

Using the sinking fund approach, how much do you have to save to buy a $5,000 care next year? a. $275/month b. $300/month c. $416.66/month

C

What is the next step after you have a fully funded emergency fund? a. Pay off the rest of your mortgage. b. Finish paying off the last credit card. c. Invest 15% of your income into Roth IRAs and pre-tax retirement plans.

C

Which of the following is not a reason to save? a. Emergency Fund b. Purchases c. Pay off debt.

C

Which statement is most true about a one-time investment for 40 years? a. The interest rate doesn't matter b. It is foolish to only make a one-time investment c. The annual interst rate does matter.

C

Even though a savings account is fine when you are just beginning to save, why is a money market a better place to keep your emergency fund? a. A saving account is a bit too easy to access. b. Typically, money markets average a higher interest rate than a savings account. c. A money market is accessible and generally has check writing privileges if needed. d. All of the above.

D

For which of the following should you save? a. Wealth building b. Emergency Fund c. Purchases d. All of the Above

D

The Baby Steps can best be described as: a. A systematic process of getting out of a financial mess. b. A series of seven sequential stpes that help you plan, save, and manage money. c. A series of stpes that will work in good times and in bad times. d. All of the above.

D

The saving habits of Ben and Arthur best illustrate which principle of saving? a. Rate of return matters b. The amount of the initial investment is the key. c. The length of time money is invested matters. d. Both a and c.

D

Which of the following is true about the concept of saving? a. Saving must become a priority after all bills are paid. b. You will save when you make more money. c. You must pay yourself first. d. All of the above

D

The emergency fund is not a big _________.

Earner

T/F - Dave's 80/20 rule says that personal finance is 80% knowledge and 20% behavior.

False - 80% behavior, 20% knowledge

T/F - If we used a race analogy to describe building wealth, it would be most like a sprint.

False - A marathon

T/F - Your first Baby Step is to pay off all your debt.

False - Create an Emergency Fund

T/F - The first thing you should save for is your retirement fund.

False - Emergency Fund

T/F - You should invest 10% of your household income into Roth IRAs and pre-tax retirement plans.

False - Invest 15%

Murphy's Law is more likely to strike if you are prepared for the unexpected events that occur throughout life.

False - Less likely to occur

T/F - A sinking fund is what really makes money grow over time.

False - Rate of Return

Pay yourself _______.

First

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

Baby Step 1 is ____________.

Save $500 - $1000

Use the ________ approach instead of borrowing to purchase things.

Sinking Fund

T/F - A money market is the best place for your emergency fund.

True

T/F - Pre-authorized checking helps to build discipline in savings.

True

T/F - Rate of Return matters when it comes to compound interest.

True