Preparing Your Financial Future

To be financially responsible in planning your future, which of the following should you do first?

• save around 10% of each paycheck in a personal savings account

• invest around 10% of each paycheck in a retirement account

• establish an emergency fund that cannot be touched unless a true emergency occurs

• set up direct deposit of your paychecks so they are automated

MaryBeth tells you that because she doesn't earn a lot of money she really can't afford to build an emergency fund or use the strategy of paying herself first.  Is this statement true or false?

• True

• False

Joaquim has set up a savings plan with compound interest.  Over time, is he likely to earn more in this savings plan this way than if he simply held the same amount each month aside in his checking account?

• Yes

• No

Which of the following looks like a financial strategy that is diversified?

• John has an $100,000 emergency fund, but not other savings or investments.  His motto is "be prepared."

• Jerica has an emergency fund, a savings account with $5,000 saved so far, and she invests in a mix of mutual funds, bonds, real estate, and some individual stocks/bonds.

• Leroy has an emergency fund and $25,000 invested in a stock known as Facebook.

• Monique prefers high risk-big payoff investments.  She invested her life savings into individual stocks from the two most up-and-coming companies she can find with the idea that because these companies are so popular she will get rich quickly.

Tara has decided to save $300 each month.  She opens a savings account that pays 4% interest, so after her first month she earns $12 additional on what she saved. If her savings account compounds the interest, which of the following is the amount of money she will have after two months?

• $324.48

• $340.48

• $316.00

• $312.00

Which of the following is a financial strategy usually recommended for people in their 20s?

• Keep your extra money in your checking account and avoid savings/investment plans because they are too risky for those who are just starting out on their financial path.

• Set up aggressive plans to save or develop money for your heirs (or future heirs).

• Get a mortgage so that your money is "saved" in real estate.

• Develop your emergency fund so it covers up to 3-6 months worth of living expenses.

Less than 40% of Americans have enough money saved to make it through 3-6 months without income.

• True

• False

Which of the following represents the pay yourself first strategy of financial planning?

• 
  Margaret sets up a mix of stocks, bonds, mutual funds, and other investments so she will be the first in her family to earn $1 million.

• Harold plans out his expenses each month so he will have a little extra to put in savings after all of his bills are paid.

• Jian-Lu takes a basic approach and opts to maintain only a basic emergency fund of $1000 so he can use the rest of his money to live life to the fullest each month.

• Terrell automatically begins each month by moving and extra $200 to his retirement account and then uses the rest of the money he has to pay his other expenses.

Which of the following is not one of the strategies that Suze Orman recommends in your assigned reading to get to big payoffs in your financial future?

• Save $50 a week in a savings account earning at least 2% interest.

• Buy real estate as a way to "save" your money.

• Set up your financial transactions like savings to be automated by your bank.

• Spend money each month on a life insurance policy.

If you buy a house through a mortgage, paying one extra payment each year (even though it isn't required) really doesn't help you pay the loan off faster or lessen the total amount you'll owe enough to justify having to come up with the extra funds to do so.

• True

• False