personal finance LAP 3

45% of americans have less than $1000 saved for an _______________

emergency

If you are always paying for things in the past, you will have _________ __________ with your money

less freedom

Once you have a $500 emergency fund, you should do what with it?

save it until you have an emergency

the first step you should take when you want to make a large purchase is …….

decide how much you’ll need to save and the time frame you want to save it in

The best way to build wealth is to start investing early, when should you start investing money?

Once you are out of college, living debt-free, and have 3-6 months of living expenses saved

Why do some accounts, like savings accounts at your local bank, earn interest?

because the bank pays you to use your money

the only place you should keep your emergency fund money is?

a savings account or a money market account

which two habits are the most important for building wealth and becoming a millionaire?

consistently investing money and patience to give it time to grow

what does the interest rate on a savings account determine

how quickly your money will grow overtime

________ _______ is a millionaire’s best friend

compound growth

being able to cover an unexpected expense with cash and protect you from having to pile up debt when something goes wrong, is the purpose of what?

emergency fund

why do stores rarely advertise the full price of big purchases like smartphones

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

compound interest is earned at a fixed rate, while _______ ________ is an average based on an investment’s past performance

compound growth

the main reasons for saving your hard-earned money are ……..

-emergencies

-large purchases

wealth building

once you’re out of school, have started your career, and have zero debt, your emergency fund should have ….

3-6 months of living expenses

the top three careers reported among millionaires were (1?, 2?, 3?)

accountants, engineers, teachers

in order to outpace inflation when investing, your investments need to have a lower rate of return than the rate of inflation (true or false)

false

what are the main differences between saving and investing?

1.) length: saving is for short term goals like a vehicle or a new tv, while investing is putting money away for longer than five years (20 to 30 years)

2.) Where you put your money: saving requires only a savings account or a money market account, but when you invest you want to put your money into a wealth-building account like a 401k

the amount of interest charged on a debt but not yet collected is called what?

accrued interest

which principle says that a certain amount of money today is worth more than the same amount in the future?

the time value of money

How does Murphy’s Law (anything that can go wrong will) apply to saving money?

applies to saving money because when you don’t make a plan to save money, you’re inviting trouble. When you run into tough spots, you won’t have money saved to take care of the problem

If you don’t have money saved up and something goes wrong, it will seem like a crisis instead of an inconvenience

how does planning and saving for your future help you build wealth

planning and saving help you build wealth because you being a millionaire does not happen overnight. It takes patience and the key is to start saving as early as possible. Most millionaires don’t make $1 million a year, they are just really good at saving

what are three questions to ask yourself before you spend money from your emergency fund

is it unexpected? is it necessary? is it urgent?

explain why making payments on a car can be a poor financial decision

because a car’s value goes down fast. With interest, you will end up paying far more for your car than you initially bargained for. At that point, you could have saved and paid cash for a good car

think about the story of Jack and Blake:
explain how Jack ended up with more money in his investment account by the time he retired, when Blake invested more money.

While Blake invested more money for more years than Jack, Jack started investing sooner and then let compound growth do the work for him. Jack then stopped putting money into his investments, but thanks to the momentum of compound growth, he still ended up with more than Blake.

Why should you avoid interest rate deals like zero-percent interest?

if you don’t have the money to pay for it upfront, you will probably have a hard time making the monthly payments on time. Thats what businesses are counting on- if you make a late payment or fail to pay off the balance in time, you’ll pay accrued interest, often all the way back to the purchase date