Questions and Answers
What are the five foundations?
What is an interest rate?
A rate which is either charged on debt or paid on investment accounts for the use of money.
What is a sinking fund?
Saving money over time for a large purchase.
What is compound interest?
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What is an emergency fund?
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What is inflation?
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What is an interest-bearing account?
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When it comes to saving money, the amount you save is determined by how much you have left at the end of the month once all of your spending is done.
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Your income level greatly affects your saving habits.
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At your age, a fully funded emergency fund should be:
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Which of the following is not one of the three basic reasons for saving money?
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Instead of borrowing money for large purchases, you should set money aside in a ______ over time and pay with cash.
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What is the first foundation?
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How did Ben come out ahead in the 'Ben and Arthur' story?
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What two things do you consider when evaluating the time value of money?
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Why do you need an emergency fund at your age?
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Study Notes
Financial Foundations
- The Five Foundations represent essential steps to achieve financial success.
- Establishing an emergency fund is the first foundation, starting with $500.
Interest and Savings
- Interest Rate refers to the cost of borrowing money or the earnings on investments.
- Compound Interest is defined as earning interest on previously accrued interest.
- Sinking Fund involves systematically saving for future large purchases, avoiding debt.
Emergency Fund
- An Emergency Fund is designated for unexpected expenses, ensuring financial security.
- At a young age, a $500 emergency fund is recommended.
Economic Concepts
- Inflation signifies a rise in the cost of goods and services, eroding purchasing power.
- An Interest-Bearing Account allows you to earn interest on your savings balance.
Savings Principles
- Savings amounts should be determined by a proactive focusing on income and expenses, not leftovers at month’s end.
- Your income level does not solely dictate your saving habits.
Key Insights
- Evaluating the time value of money involves considering both interest and inflation rates.
- Early investing, as illustrated in the "Ben and Arthur" story, can lead to greater wealth accumulation, despite lower initial contributions.
Practical Applications
- It's advisable to save for large purchases in a Sinking Fund rather than relying on loans.
- Assessing the reasons for saving includes not only personal security but also avoiding financial liabilities such as lending money to friends.
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Description
Test your knowledge on personal finance concepts with this quiz based on Chapter 2 of Money in Review. The flashcards cover essential financial terms including the Five Foundations, interest rates, sinking funds, and compound interest. Perfect for students looking to enhance their financial literacy!
