Personal Finance Chapter 3 Flashcards
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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?

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

    Define Compound Growth.

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

    What is Compound Interest?

    <p>Interest paid on interest previously earned.</p> Signup and view all the answers

    What does Principal refer to?

    <p>The initial amount of money invested or borrowed.</p> Signup and view all the answers

    Explain Rate of Return.

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

    What is Inflation?

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

    Define Time Value of Money.

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

    What is the First Foundation?

    <p>Save a $500 emergency fund.</p> Signup and view all the answers

    What is the Second Foundation?

    <p>Get out and stay out of debt.</p> Signup and view all the answers

    What is the Third Foundation?

    <p>Pay cash for your car.</p> Signup and view all the answers

    What is the Fourth Foundation?

    <p>Pay cash for college.</p> Signup and view all the answers

    What is the Fifth Foundation?

    <p>Build wealth and give.</p> Signup and view all the answers

    What is the First Reason to Save?

    <p>Emergencies</p> Signup and view all the answers

    What is the Second Reason to Save?

    <p>Large Purchases</p> Signup and view all the answers

    What is the Third Reason to Save?

    <p>Wealth Building</p> 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 ________?

    <p>urgent</p> Signup and view all the answers

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

    <p>investing in your future.</p> Signup and view all the answers

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

    <p>accrued interest</p> Signup and view all the answers

    What would be an emergency fund expense?

    <p>blown car tire</p> Signup and view all the answers

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

    <p>compound growth</p> Signup and view all the answers

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

    <p>buyer's remorse</p> Signup and view all the answers

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

    <p>money invested and time</p> 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!

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