Foundations in Personal Finance - Chapter 2 Test

1) Which of the following steps is the First Foundation?

• Get out of debt

• Build wealth and give

• Save a $500 emergency fund

• Pay cash for your car

Instead of borrowing money for large purchases, you should set money aside in a _________over time and pay with cash.

• Emergency fund

• Sinking fund

• Credit card fund

• Mortgage fund

What does it mean to have a negative savings rate?

• Saving for something that is a want instead of a need

• Having a fully funded emergency fund

• Having no savings at all

• Spending more money than you make and acquiring debt

The saving habits of Ben and Arthur best illustrate which principle of saving? The length of time money is invested matters and Rate of return matters.

• T

• F

This principle suggests that a certain amount of money today has different buying power than the same amount of money in the future. This is due to both the opportunity to earn interest on the money and because inflation will drive prices up, thereby changing the ʺvalueʺ of the money

• Opportunity cost

• Time value of money

• Interest rate

• Inflation

For which of the following should you save?

• Purchases

• Wealth building

• Emergency fund

• All of the above

At your age, a fully funded emergency fund should be

• $500

• $5,000

• $100

• $1000

Which of these is not a key to saving money?

• Focus

• Making saving a habit and a priority

• Your income

• Discipline

Which of the following is a reason that people donʹt save money?

• They lack discipline

• They do not live on a budget

• They lack focus

• All of the above

Which of the following is not one of the three basic reasons for saving money?

• Emergency fund

• Large purchases

• Have money available to lend to friends

• Build wealth