Dave Ramsey Chapter 1 - Introduction to Personal Finance

The Five Foundations

1. Save a $500 emergency fund

2. Get out of debt

3. Pay cash for your car

4. Pay cash for college

5. Build wealth and give

Personal Finance

All of the decisions and activities of an individual or family regarding their money, including spending, saving, budgeting, etc.

Consumer

a person or organization that uses a product or service

Debt

Money owed

Paycheck to Paycheck

an expression used to describe a person or household whose monthly income is devoted to expenses and has little to no savings

Credit

the granting of a loan and the creation of debt; any form of deferred payment

Interest Rate

the percentage of principal charged by the lender for use of its money

Loan Shark

person or entity that charges borrowers interest rates above an established legal rate

Interest

the additional cost a lender charges for borrowing their money

Financial Plan

a plan of action that allows a person to meet not only their immediate needs but also their long-term goals

Net Worth

the amount by which the value of a person's assets exceeds or falls behind the value of their liabilities

Asset

anything that is owned by an individual, including money in the bank or investments

Liability

financial debts or obligations

Positive Net Worth

the dollar value of a person's assets is greater than the dollar value of their liabilities

Negative Net Worth

the dollar value of a person's liabilities is larger than the value of their assets

Net Income

what a person earns after payroll taxes and other deductions are taken out; often referred to as take-home pay

Expense

the cost of goods or services; money paid out

Financial Literacy

the knowledge and skill base necessary for people to be informed consumers and manage their finances effectively

Making the right choices with your money—managing your money—involves knowing how . . .

Earning, budgeting, saving, spending and giving your money.

You should always make sure you have a...

Budget

To gain an understanding of your personal finances, you should know . . .

Where you are financially, amount of income you have, goals you want to set

What is The First Foundation?

Have a $500 emergency Fund

Personal finance is the financial decisions a(n) _______ must make in order to earn, budget, save, spend, and give.

individual or family

A money principle to keep in mind is to live on _______ you make.

less than

To know your net worth, subtract your liabilities from your _____.

assets

Savers have a tendency to be . . .

strict with their money and not spend any of it

What is the best way to avoid running out of money too quickly?

You can make a habit to plan and set goals for your money

If your assets total more than your liabilities, you will have a(n) _____ net worth.

positive

What are The Five Foundations? (not detailed)

a financial action plan

Your money personality impacts . . .

how you handle money

What does living paycheck to paycheck mean?

when a person's income is used for expenses and little is put in savings

The 5th Foundation is to build wealth and be outrageously _______.

generous

When you set financial goals, they should be . . .

Specific, measurable, time-sensitive,yours, and written

As a single adult, you should

Keep managing your money as a priority

A _____ financial goal takes up to two years to reach.

short term

T or F: You are either only a natural saver or a natural spender. You cannot have a balance of both.

False