Chapter 3 || Chapter Post-Test || David Ramsey Classroom || Personal Finance

In order to outpace inflation when investing, your investments need to have a lower rate of return than the rate of inflation.

a) True

b) False

b) False

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

a) Principal interest

b) The time value of money

c) Rate of return

d) Inflation

b) The time value of money

It's not IF an emergency will happen, but _______.

a) When

b) Why

c) Where

d) How

a) When

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

a) Working a high-paying job and relying on a trust fund

b) Investing into the right stocks and using a private CPA

c) Consistently investing money and patience to give it time to grow

d) Always paying off your credit card on time and putting extra money into a retirement account

c) Consistently investing money and patience to give it time to grow

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

a) By showing you only the monthly payment, they make the product seem affordable.

b) Hiding the full price allows stores to change their pricing as the market fluctuates.

c) They are trying to keep their prices competitive.

d) They are trying to cheat you.

a) By showing you only the monthly payment, they make the product seem affordable.

The main reasons for saving your hard-earned money are...

a) Investing, indulging, and influencing

b) Emergencies, large purchases, and wealth building

c) Buying gifts, donating to charities, and building up a college fund for your kids

d) Paying for your dream home, buying your dream car, and going on your dream vacation

b) Emergencies, large purchases, and wealth building

Compound interest is earned at a fixed rate, while ________ is an average based on an investment's past performance.

a) Compound growth

b) The Fifth Foundation

c) Interest rate

d) The principal

a) Compound growth

90% of millionaires make over $100,000 a year.

a) True

b) False

b) False

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

a) Ask your parents to loan you the money with low interest

b) Get a new credit card

c) Decide how much you'll need to save and the time frame you want to save it in

d) Sell something and use the proceeds

c) Decide how much you'll need to save and the time frame you want to save it in

_______ is a millionaire's best friend.

a) Profit sharing

b) High returns

c) Compound growth

d) Accrued interest

c) Compound growth

You should budget in this order: giving, savings, spending.

a) True

b) False

a) True

The amount of interest charged on a debt but not yet collected is called...

a) Growth rate

b) Same-as-cash

c) Interest rate

d) Accrued interest

d) Accrued interest

The top three careers reported among millionaires were _____________, _____________, and ___________.

a) Accountants; engineers; teachers

b) Celebrities; developers; writers

c) Lawyers; surgeons; accountants

d) Pro athletes; bankers; CEOs

a) Accountants; engineers; teachers

The interest rate on a savings account determines...

a) How quickly your money will grow over time

b) How much money you need to have to open the account

c) How much you will pay the bank to manage the account

d) The amount of time your money will be in the account

a) How quickly your money will grow over time

Once you have a $500 emergency fund, you should...

a) Start putting it toward debt

b) Save it until you have an emergency

c) Invest it in the stock market to grow your money

d) Use the money to pay for health insurance

b) Save it until you have an emergency

Debt is a tool to use to make you wealthy.

a) True

b) False

b) False

The best way to build wealth is to start investing early. You should start investing money...

a) As soon as you have extra cash

b) Once you have a fully funded emergency fund

c) Once you're out of college, living debt-free, and have 3-6 months of living expenses saved

d) When the stock market is performing really well

c) Once you're out of college, living debt-free, and have 3-6 months of living expenses saved

What is the goal of an emergency fund?

a) To pay for large purchases

b) To save for your children's college expenses

c) To have cash on hand for unexpected events

d) To pay for health insurance

c) To have cash on hand for unexpected events

What is the Third Foundation?

a) Create a monthly budget.

b) Save for retirement.

c) Pay cash for college.

d) Pay cash for your car.

d) Pay cash for your car.

Once you're out of school, have started your career, and have zero debt, your emergency fund should have _________.

a) 3-6 months of income

b) 3-6 months of living expenses

c) $3,000

d) $5,000

b) 3-6 months of living expenses

If you really want to save money, you've got to...

a) Fly economy class

b) Live on less than you make

c) Invest in a Roth IRA

d) Have a financial advisor

b) Live on less than you make

If people saved the equivalent of a car payment each month for a year or two (instead of spending it on payments and interest), they could have enough money to buy a car with cash for much cheaper!

a) True

b) False

a) True

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

a) Because you deposit money, adding to your principal each month

b) Because the bank pays you to use your money

c) Because of inflation

d) Because those accounts always have great interest rates

b) Because the bank pays you to use your money

Which of these would count as a legitimate reason to use your emergency fund?

a) You have a fancy event coming up but you already spent all of your Clothing budget category

b) You forgot to budget for your mom's birthday gift

c) The smartphone you've wanted just went on sale

d) Your car battery died

d) Your car battery died

One of the main reasons we build wealth is so that we can...

a) Give to those in need

b) Spend it all on ourselves

c) Impress the people around us

d) Prove that we are successful

a) Give to those in need

45% of Americans have less than $1,000 saved for a(n) _______.

a) Emergency

b) Car

c) Retirement fund

d) New smartphone

a) Emergency

While saving money isn't easy at first, it will make your life a lot _______ in the future if you make it a habit now.

a) Longer

b) Poorer

c) Harder

d) Easier

d) Easier

The purpose of an emergency fund is to...

a) Teach you discipline—saving is purely a good exercise in self-control.

b) Teach you how to invest in growth stock mutual funds.

c) Have some extra money in a checking account in case you need to transfer some to your spending categories.

d) Be able to cover an unexpected expense with cash and protect you from having to pile up debt when something goes wrong.

d) Be able to cover an unexpected expense with cash and protect you from having to pile up debt when something goes wrong.

The only place you should keep your emergency fund money is...

a) An envelope in a safe place

b) A Roth IRA

c) A safe in your bedroom

d) A savings account or money market account.

d) A savings account or money market account.

You'll have less freedom with your money if you...

a) Invest in the stock market

b) Are paying for things in your past

c) Put money in a bank account

d) Make less than $35,000

b) Are paying for things in your past

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

Murphy's Law is applied to saving money because you use it when you make a emergency fund for incase anything goes wrong, because the law is if something can go wrong it will. So if something does go wrong you have the savings to get help and fix it.

How does planning and saving for your future help you build wealth?

Planning and saving for your future will help you build wealth because you will spend your money on things you can actually afford and need rather than spending and spending money you do not have. It also helps because you will grow the habit of being cautious about your money choices

What are three questions to ask yourself before you spend your emergency fund?

Explain why making payments on a car is such a poor financial decision.

Think back to 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.

ESSAY QUESTION

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

ESSAY QUESTION

What are the main differences between saving and investing?