Unit 4 Saving Study Guide

These flashcards cover key concepts from Unit 4 related to savings and investments, including the purpose of saving, emergency funds, investments, and financial discipline.

What are the three main reasons people save?

1. Large purchases 2. Emergencies 3. Wealth building.

When should you start investing?

When you are debt free and have a fully funded emergency fund.

Where should you keep your emergency fund?

In a separate savings or money market account.

Is debt a wealth-building tool?

No.

What are the top 3 careers of millionaires?

1. Accountant 2. Engineer 3. Teacher.

What is the purpose of an emergency fund?

To have money to pay for unexpected expenses.

If you really want to save money, what do you need to do?

Live on less than you make.

How large should your emergency fund be once you finish school and start your career?

3-6 months of expenses.

How do millionaires build wealth?

By investing and through compound growth.

When planning to make a large purchase, what should you do?

Figure out how much it costs and the timeframe, then divide the cost by the number of months to save for it in your budget.

Give two examples for when you can/should use your emergency fund.

1. Immediate car troubles. 2. Medical emergency.

What should you do after you use your emergency fund?

Build it back up quickly.

True or False: Debt gives you more freedom financially.

False.

When investing, what three things do you need to make money?

1. Time 2. Patience 3. Consistency.

Define compound interest.

A fixed rate.

Define compound growth.

The average of investments' past performance.

__ is your initial investment.

Principal.

In order to make money, your investments need to outpace what?

Inflation.

True or False: Majority of millionaires make over $100,000 a year.

False.

What is the time value of money?

A certain amount of money today is worth more than the same amount in the future.

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

Emergencies.

Why do some accounts like savings earn interest?

Banks pay you to use some of your money on loans.

Compound interest is earned at a fixed rate, is the average based on past performance.

Compound growth.

What are the three things that define an emergency?

1. Unexpected 2. Necessary 3. Urgent.

Becoming a millionaire takes __.

Time.

The ability to say no to buying things you don’t have money for or need is called what?

Self-discipline.

Define a large purchase.

Something you don’t have the money for right now.

What does living paycheck to paycheck mean?

All income is used to cover expenses.

Explain how someone can invest less money over time than another person, but still have more money in the end.

If they start early and allow the investment to grow over time, compound growth will result in more money.

What is the main difference between saving and investing?

Saving is more accessible for emergencies and large purchases, while investing is a long-term goal to build wealth.

Why are car payments bad for your financial future?

They are a form of debt and paying for your past, preventing you from saving and investing.

What 2 things should you do before you start investing?

1. Have a fully funded emergency fund 2. No debt.

If you start saving and paying in cash for large purchases, how can that help you later in life?

It helps avoid debt and allows you to build wealth through investments sooner.

What 2 things cause you to have money?

Income and savings.

Murphy’s law states what?

Anything that can go wrong will go wrong.

What are three differences between ETFs and mutual funds?

1. ETFs trade like stocks, mutual funds trade at the end of the day. 2. ETFs usually have lower fees. 3. ETFs often have a lower initial investment.

When are taxes taken out for a traditional IRA? Roth?

Traditional: taxes are paid when you withdraw in retirement (pre-tax). Roth: taxes are paid on income before it is invested (post-tax).

What things does a money market account offer that basic savings accounts don’t?

Higher interest rates and check writing.