Personal Financial Management - Chapter 1 Flashcards Preview

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Flashcards in Personal Financial Management - Chapter 1 Deck (28)
0

Amoral

Lacking morals; neither good nor bad

1

Compound interest

Interest paid on interest previously earned

2

Emergency fund

3-6 months of expenses in daily available cash to be used only in the event of emergency baby step 3

3

Interest rate

Percentage paid to a lender for the use of borrowed money

4

Money market

Invest your emergency fund into this fund

5

Murphy's law

Anything that can happen, will happen

6

Pre-authorized checking (PAC)

System of automatic payment processing by which bills, deposits, and payments are handled electronically at regular intervals or on a pre-determined schedule

7

Sinking fund

Saving money for a specific purpose to allow interest to work for you rather than against you

8

Key to wealth building?

Discipline

9

For most a fully funded emergency fund would be?

$10,000-$15,000

10

Ben and Arthur illustrate which principle of saving?

Compound interest

11

What should you save for? (3)

Emergency fund
Purchases
Wealth building

12

How many baby steps are there?

7

13

Saving is about? (2)

Emotion and contentment

14

What is true about PACs? (2)

Stands for pre-authorized checking

Helps build discipline when saving

15

Dave's 80/20 rule says when it comes to money 80% is head knowledge and 20% is behavior

False, it's 80% behavior, 20% head knowledge

16

Your income level affects your saving habits

False! Discipline affects saving habits

17

What is interest?

Money paid to a saver by a financial institution

18

Correct order for using money? (3)

Save, pay bills, give

19

What are the 7 baby steps to saving? (7)

1. $1000 in emergency fund
2. Pay off debts ("debt snowball")
3. 3-6 months of expenses in savings
4. Invest 15% of household income into Roth IRA and pre-tax retirement plans
5. College funding
6. Pay off home early
7. Build wealth and give

20

Savings must be a priority so...

Pay yourself first.

21

What is the U.S.'s savings rate?

-.6%

22

Money is

Amoral

23

An emergency fund is NOT... But is... (2)

An investment

Insurance

24

Purchases (2)

Use a sinking fund approach

instead of borrowing to purchase, pay with cash

25

Wealth building (2)

It's a marathon, not a sprint

Use PACs to build discipline

26

How to calculate compound interest?

FV = PV(1+r/m)^mt

FV = final value
PV = present value
R = rate of interest (decimal)
M = # of times per year interest is compounded
T = # of years it is invested

27

Rate of return

Compound interest works over time and this will make a difference in how large your investments grow