Chapter 3 Saving Money - Chapter Pre-Test (Video Notes)

Flashcards covering key concepts from the Chapter 3 Saving Money pre-test notes.

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

Because the bank pays you to use your money.

When should you start investing money to build wealth?

As soon as you have extra cash.

What is the first step you should take when you want to make a large purchase?

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

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

Start putting it toward debt.

You have less freedom with your money if you…

Are paying for things in your past.

45% of Americans have less than $1,000 saved for an

Emergency

The interest rate on a savings account determines.

How quickly your money will grow over time

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

Consistently investing money and giving it time to grow

True or False: 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.

True

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

A savings account or money market account

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

Live on less than you make

It's not if an emergency will happen, but

When

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

Rate of return

A millionaire's best friend is

Compound growth

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

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

The purpose of an emergency fund is to

Be able to cover an unexpected expense with cash and avoid debt

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

False

Debt is a tool to use to make you wealthy

False

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

True

The top three careers reported among millionaires were

Lawyer; surgeons; accountants

What is the Third Foundation?

Save for retirement

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 main reasons for saving your hard-earned money are …

Emergencies, large purchases, and wealth building

What is the goal of an emergency fund?

To have cash on hand for unexpected events

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

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

Give to those in need

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

Accrued interest

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

Your car battery died

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

False

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

True