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Econ Unit 4 Test
| Question | Answer |
|---|---|
| What are the three main reasons people save? | Emergencies, large purchases, building wealth |
| When should you start investing? | After you paid off all debt and have a fully funded emergency fund |
| Where should you keep your emergency fund? | A separate account from the rest of your money that is easily accessible (money market if you have enough for the initial investment) |
| Is debt a wealthy building tool? | no |
| What are the top 3 careers of millionaires? | Accountant, Engineer, Teacher |
| What is the purpose of an emergency fund? | Pay for unexpected expenses |
| If you really want to save money, what do you need to do? | Live on less than you make |
| How large should your emergency fund be once you finish school and start your career? | 3-6 months of expenses |
| How do millionaires build wealth? | Investing and compound growth |
| When planning to make a large purchase what should you do? | Figure out how much it costs and establish a timeframe of when you want/need it. Then divide the cost by the amount of months and save that monthly in their budget. |
| Give me two examples for when you can/should use your emergency fund. | Flat tire, medical bill, avoid debt |
| What should you do after you use your emergency fund? | Replenish it as quickly as possible |
| True or False- Debt gives you more freedom financially. | False |
| When investing what three things do you need to make money? | Time, patience and consistency |
| Define compound interest. | fixed rate |
| Define compound growth. | Average of investments past performance |
| __________ is your initial investment. | principal |
| In order to make money your investments need to outpace what? | inflation |
| True or False- Majority of millionaires make over $100,000 a year. | false |
| What is the time value of money? | A certain amount of money today is worth more than the same amount in the future |
| 45% of Americans have less than $1,000 saved for a(n) __________ | emergency |
| Why do some accounts like savings earn interest? | Banks pay you to use your money for loans. |
| Compound interest is earned at a fixed rate, ______________ is the average based on the investments past performance. | compound growth |
| What are the three things that define an emergency? | Unexpected, necessary, urgent |
| Becoming a millionaire takes _________ | time |
| The ability to say no to buying things you don’t have money for or need is called what? | Self-discipline |
| Define a large purchase. | Anything you don’t have cash for right now |
| What does living paycheck to paycheck mean? | All of their income is used to cover expenses |
| Explain how someone can invest less money over time than another person, but still have more money in the end. | If they start early and allow the investment to grow over time compound growth will allow them to have more money. |
| What is the main difference between saving and investing? | Savings are more accessible and used for emergencies and large purchases while investing is a long term goal used to build wealth |
| Why are car payments bad for your financial future? | It is a form of debt and paying for your past. Prevents you from having money to save and invest. |
| What 2 things should you do before you start investing? | Have a fully funded emergency fund and no debt |
| If you start saving and paying in cash for large purchases how can that help you later in life? | It will help you avoid debt and allow you to build wealth through investments sooner. |
| What 2 things cause you to have money? | Income and Savings |
| Murphy’s law states what? | Anything that can go wrong will go wrong. |
| What are three differences between ETFs and mutual funds? | ETFs trade like stocks when the market is open. Mutual funds trade at the end of the day. ETFs have a lower fee than Mutual funds because of the different management style ETFs often have a lower initial investment |
| When are taxes taken out for a traditional IRA? Roth? | Traditional you pay taxes once you start to withdraw money during retirement (pre) Roth you pay taxes on your income before it is invested (Post) |
| What things does a money market account offer that basic savings accounts don’t? | Higher interest rates, Check writing |
| 3 things that equal your compound growth and build wealth for retirement | Money Time rate of return |
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