Personal Finance Chapter 3 Flashcards

Questions and Answers

What is an Emergency Fund?

A retirement fund

An investment account

A type of insurance

A savings account set up for financial emergencies (correct)

What is a Large Purchase?

A purchase that requires a significant amount of money

Define Interest Rate.

The percentage of principal charged by the lender for use of its money.

What is Accrued Interest?

The amount of interest charged on a debt but not yet collected. Signup and view all the answers

Define Compound Growth.

The average rate of growth for an investment over time. Signup and view all the answers

What is Compound Interest?

Interest paid on interest previously earned. Signup and view all the answers

What does Principal refer to?

The initial amount of money invested or borrowed. Signup and view all the answers

Explain Rate of Return.

The measure of an investment's profit or loss, usually expressed as a percentage of the initial investment. Signup and view all the answers

What is Inflation?

The persistent rise in the cost of goods and services over time. Signup and view all the answers

Define Time Value of Money.

The concept that an amount of money is worth more today than in the future due to earning potential. Signup and view all the answers

What is the First Foundation?

Save a $500 emergency fund. Signup and view all the answers

What is the Second Foundation?

Get out and stay out of debt. Signup and view all the answers

What is the Third Foundation?

Pay cash for your car. Signup and view all the answers

What is the Fourth Foundation?

Pay cash for college. Signup and view all the answers

What is the Fifth Foundation?

Build wealth and give. Signup and view all the answers

What is the First Reason to Save?

Emergencies Signup and view all the answers

What is the Second Reason to Save?

Large Purchases Signup and view all the answers

What is the Third Reason to Save?

Wealth Building Signup and view all the answers

The 3 questions when determining if something is an emergency are: Is it unexpected? Is it necessary? Is it ________?

urgent Signup and view all the answers

Complete this quote by Anthony O'Neal: 'Start paying yourself and ________.'

investing in your future. Signup and view all the answers

What might the lender add if you make a late credit payment?

accrued interest Signup and view all the answers

What would be an emergency fund expense?

blown car tire Signup and view all the answers

Rate of return is a phrase used to describe what aspect of investing?

compound growth Signup and view all the answers

When you make a purchase but later wish you hadn't done so, you experience ________.

buyer's remorse Signup and view all the answers

What two elements do you need to build wealth through compound growth?

money invested and time Signup and view all the answers

Study Notes

Emergency Fund and Foundations

An emergency fund is specifically for covering unexpected financial emergencies.
The First Foundation emphasizes saving a $500 emergency fund.
Subsequent foundations guide financial behavior: staying out of debt, paying cash for cars and college, and wealth building.

Financial Concepts

Large purchases necessitate significant financial outlay and planning.
The interest rate is a crucial factor, indicating the percentage charged by lenders for borrowed money.
Accrued interest refers to unpaid interest that accumulates from the loan's issuance date.
Compound growth reflects the average investment growth over time, typically expressed annually.
Compound interest is interest calculated on both the initial principal and the accumulated interest from prior periods.
The principal denotes the initial sum of money invested or borrowed.

Investment Performance

Rate of return measures an investment's profitability, expressed as a percentage of the initial investment.
Inflation is characterized by a persistent increase in the cost of goods and services over time.
The time value of money suggests that money today has greater value due to its potential to earn interest.

Reasons to Save

Saving is essential for managing emergencies, funding large purchases, and building wealth.
Questions to determine if a situation qualifies as an emergency: Is it unexpected? Is it necessary? Is it urgent?

Practical Insights and Experiences

Speaker Anthony ONeal advises to "start paying yourself" and focus on investing in your future.
Late credit payments can lead to accrued interest being added to the outstanding amount.
An example of an emergency fund expense includes unpredictable costs like a blown car tire.

Psychological Aspects of Spending

Buyer's remorse describes the feeling of regret after making an unwanted purchase.
To achieve wealth through compound growth, two key components are necessary: invested money and the passage of time.

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Description

Test your knowledge with these flashcards from Chapter 3 of Personal Finance. This chapter covers key terms related to managing finances, such as emergency funds, large purchases, and interest rates. Perfect for quick reviews or study sessions!