WorksheetsChapter 3 Test
Total questions: 60
Worksheet time: 30mins
45% of Americans have less than $1,000 saved for a(n) _________.
Emergency
Car
Retirement fund
New smartphone
You'll have less freedom with your money if you . . .
Invest in the stock market
Are paying for things in your past
Put money in a bank account
Make less than $35,000
Once you have a $500 emergency fund, you should . . .
Start putting it toward debt
Invest it in the stock market to grow your money
Save it until you have an emergency
Use the money to pay for health insurance
The first step you should take when you want to make a large purchase is . . .
Ask your parents to loan you the money with low interest
Get a new credit card
Decide how much you'll need to save and the time frame you want to save it in
Sell something and use the proceeds
The best way to build wealth is to start investing early. You should start investing money . . .
Once you have a fully funded emergency fund
Once you're out of college, living debt-free, and have 3–6 months of living expenses saved
When the stock market is performing really well
As soon as you have extra cash
Why do some accounts, like savings accounts at your local bank, earn interest?
Because you deposit money, adding to your principal each month
Because the bank pays you to use your money
Because those accounts always have great interest rates
Because of inflation
It's not IF an emergency will happen, but ________.
How
Where
Why
When
If you really want to save money, you’ve got to . . .
Fly economy class
Live on less than you make
Invest in a Roth IRA
Have a financial advisor
The only place you should keep your emergency fund money is…
A savings account or money market account.
A safe in your bedroom
A Roth IRA
An envelope in a safe place
If people saved the equivalent of a car payment each month for a year or two (instead of spending it on payments and interest), they could have enough money to buy a car with cash for much cheaper!
True
False
Which two habits are the most important for building wealth and becoming a millionaire?
Working a high-paying job and relying on a trust fund
Always paying off your credit card on time and putting extra money into a retirement account
Investing into the right stocks and using a private CPA
Consistently investing money and giving it time to grow
The interest rate on a savings account determines . . .
How much money you need to have to open the account
How much you will pay the bank to manage the account
The amount of time your money will be in the account
How quickly your money will grow over time
Debt is a tool to use to make you wealthy.
True
False
You should budget in this order: giving, savings, spending.
A. True
B. False
________ is a millionaire’s best friend.
Accrued interest
Compound growth
High returns
Profit sharing
The purpose of an emergency fund is to . . .
Be able to cover an unexpected expense with cash and protect you from having to pile up debt when something goes wrong.
Teach you how to invest in growth stock mutual funds.
Have some extra money in a checking account in case you need to transfer some to your spending categories.
Teach you discipline—saving is purely a good exercise in self-control.
Why do stores rarely advertise the full price of big purchases like smartphones?
They are trying to keep their prices competitive.
Hiding the full price allows stores to change their pricing as the market fluctuates.
By showing you only the monthly payment, they make the product seem affordable.
They are trying to cheat you.
18. Compound interest is earned at a fixed rate, while _______ is an average based on an investment's past performance.
The principal
Interest rate
The Fifth Foundation
Compound growth
What is the goal of an emergency fund?
To pay for large purchases
To save for your children's college expenses
To have cash on hand for unexpected events
To pay for health insurance
The main reasons for saving your hard-earned money are . . .
Emergencies, large purchases, and wealth building
Paying for your dream home, buying your dream car, and going on your dream vacation
Buying gifts, donating to charities, and building up a college fund for your kids
Investing, indulging, and influencing
Once you're out of school, have started your career, and have zero debt, your emergency fund should have ________.
3–6 months of income
3–6 months of living expenses
$3,000
$5,000
What is the Third Foundation?
Pay cash for your car.
Pay cash for college.
Save for retirement.
Create a monthly budget.
The top three careers reported among millionaires were _________, _________, and _________.
Pro athletes; bankers; CEOs
Lawyers; surgeons; accountants
Celebrities; developers; writers
Accountants; engineers; teachers
In order to outpace inflation when investing, your investments need to have a lower rate of return than the rate of inflation.
True
False
While saving money isn't easy at first, it will make your life a lot __________ in the future if you make it a habit now.
Easier
Harder
Poorer
Longer
90% of millionaires make over $100,000 a year.
True
False
Which of these would count as a legitimate reason to use your emergency fund?
You forgot to budget for your mom's birthday gift
You have a fancy event coming up but you already spent all of your Clothing budget category
The smartphone you've wanted just went on sale
Your car battery died
The amount of interest charged on a debt but not yet collected is called . . .
Accrued interest
Interest rate
Same-as-cash
Growth rate
One of the main reasons we build wealth is so that we can . . .
Give to those in need
Spend it all on ourselves
Impress the people around us
Prove that we are successful
Which principle says that a certain amount of money today is worth more than the same amount in the future?
A. Inflation
B. Rate of return
C. The time value of money
D. Principal interest
How does Murphy’s Law ("anything that can go wrong will go wrong") apply to saving money?
When you don't make a plan to save money, you're inviting trouble.
implies that saving money is always successful.
states that saving money leads to financial ruin.
indicates that saving money is unnecessary.
Planning and saving for your future helps you build wealth by:
Ensuring financial security and growth
Increasing immediate spending
Avoiding all types of investments
Relying solely on credit cards
What are three questions to ask yourself before you spend your emergency fund?
Is this expense necessary?
Is it unexpected?
Is it urgent?
should I get it?
Making payments on a car is considered a poor financial decision because:
It increases the overall cost due to interest.
It builds equity in the car.
It improves credit score significantly.
It provides tax benefits.
Use what you've learned in this chapter to answer this question. Think back to the story of Jack and Blake. How did Jack ended up with more money in his investment account by the time he retired, when Blake invested more money.
Jack started investing earlier than Blake, allowing his investments to grow over a longer period.
Jack invested in higher-risk, higher-return assets compared to Blake.
Jack received a large inheritance that boosted his investment account.
Jack had a better financial advisor than Blake.
Why should you avoid interest rate deals like zero-percent interest?
They often come with hidden fees or conditions.
They are always the best option available.
They are illegal in most countries.
They guarantee financial success.
The main differences between saving and investing are:
Saving is for short-term goals and investing is for long-term growth.
Saving involves higher risk compared to investing.
Investing guarantees returns while saving does not.
Saving and investing are essentially the same.
What is the primary benefit of compound interest?
It allows your money to grow exponentially over time.
It provides immediate liquidity.
It guarantees a fixed return.
It reduces the risk of investment.
Which of the following is a smart way to avoid going into debt for a major purchase?
Borrow money from friends
Take out a payday loan
Apply for multiple credit cards
Save up and pay cash
Why is it important to start saving for retirement early?
It allows your money to grow through compound interest
It guarantees you will become a millionaire
It eliminates the need for an emergency fund
It increases your monthly expenses
Fill in the blank below using the correct key terms from this chapter. _____ is the average rate of growth for an investment over a period of time.
compound growth
compound interest
interest rate
time value of money
Fill in the blank below using the correct key terms from this chapter. The price of goods and services increases over time due to _____.
inflation
accrued interest
principal
time value of money
Fill in the blank below using the correct key terms from this chapter. The initial amount of money you deposit or invest is called the _____.
principal
rate of return
emergency fund
compound interest
Use what you’ve learned in this chapter to complete the sentence. If you make a late credit payment, the lender may add _____ to what you owe.
accrued interest
a bonus deposit
principal repayment
inflation adjustments
Use what you’ve learned in this chapter to complete the sentence. The three reasons to save money are _____.
for an emergency fund, for large purchases, and to build wealth
to pay interest, to increase debt, and to spend more
for vacations only, for a new phone, and for parties
to speculate on risky stocks, to borrow more, and to avoid budgeting
In the compound interest formula FV=PV(1+mr)mt what does the PV stand for?
The time
The future amount
The present Value
The interest rate
In general, what happens to money that you have saved in a jar in your closet for 20 years?
I will be able to buy more with it than I could when I saved it.
I will be able to buy less with it than I could when I saved it.
It's the same amount of money so I will be able to buy the same with it than when I saved it.
What is the biggest problem with this statement?
"I will be getting a pension of $1500 a month. This is enough to cover my expenses now, so I will be Ok for the rest of my life"
It does not account for inflation.
This person might lose their pension.
This person should be saving their money
what is the challenge of inflation when it comes to long term saving?
You need to find a way to make your money grow so that hopefully it grows faster than inflation.
Since prices keep going up, you are out of luck no matter what you do.
Saving your money in a jar is the safest thing because you can't lose it.
The amount of time it takes for money to double in value (72 ÷ APY = Years) is called?
Rule of 72
APY
72 Rule
Interest calculated on both the principal and the accrued interest is called?
The ease with which an asset can be converted into cash is called?
What is setting aside present income for future use and is liquidable?
What is the phrase that is used when you set aside money for saving first then spend what is left?
Fill in the blank below using the correct key terms from this chapter. The _____ refers to the earning potential of money.
time value of money
rate of return
compound growth
emergency fund
Use what you’ve learned in this chapter to complete the sentence. A great principle for saving money is, "Start paying yourself and _____."
investing in your future
spending on big purchases
taking on low-interest debt
waiting for raises
Which of the following is the formula for the Rule of 72?
Time Divided by 72 Equals the Interest Rate
72 Divided by Interest Rate Equals the Time to double your money
Interest Rate Multiplied by 72 Equals the time to double your money
Your money deposit divided by 72 Equals the time to double your money
What did Albert Einstein call compound interest?
a way to earn less money
a way to earn more money
The most powerful force in the universe
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
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
