Personal Finance Chapter 1 Test

1.

1 point

________ says that whatever can go wrong will go wrong.

$500-$1000

Money Market

Sinking Fund

Murphy’s Law

2.

1 point

A sinking fund is what really makes money grow over time.

True

False

3.

1 point

Which of the following is true about the concept of saving?

Saving must become a priority

You will save more when you make more money

You must pay yourself first

All of the above

4.

1 point

Baby Step one is ________.

$500-$1000

Positive

Sinking Fund

3-6

5.

1 point

Which is the correct order of priorities for your money?

Give, save, pay bills

Save, pay bills, give

Pay bills, save, give

It is not important which order you follow as long as you do these three things It is not important which order you follow as long as you do these three things

6.

1 point

Which of the following would be the most sensible way to buy a $4,000 car?

Put a down payment of $500 and use 90 days same-as-cash to pay the balance.

Shop around for the best interest rate before taking out a $4,000 loan.

Use the sinking fund approach and save $400 a month for ten months.

Ask your parents to co-sign a loan atyour local credit union.

7.

1 point

A money market is the best place for your emergency fund.

True

False

8.

1 point

The emergency fund is not a big ________.

Amoral

Priority

Earner

Money Market

9.

1 point

The saving habits of Ben and Arthur best
illustrate which principle of saving?

Rate of return matters.

The amount of the initial investment is the key.

The length of time money is invested matters.

Both a and c.

10.

1 point

Pre-authorized checking helps to build discipline in saving.

True

False

11.

1 point

Saving must become a ________.

Priority

Rate of Return

Sinking Fund

Murphy’s Law

12.

1 point

Rate of return matters when it comes to compound interest.

True

False

13.

1 point

What is the next step after you have a fully funded emergency fund?

Pay off the rest of your mortgage

Finish paying off the last credit card

Invest 15% of your income into Roth IRAs and pre-tax retirement plans

Work on both a and b at the same time

14.

1 point

Even though a savings account is fine when you are just beginning to save, why is a money market a better place to keep your emergency fund?

A savings account is a bit too easy to access.

Typically, money markets average a higher interest rate than a savings account.

A money market is accessible and generally has check writing privileges if needed.

All of the above.

15.

1 point

Which statement is most true about a one-time investment for 40 years?

The interest rate doesn’t matter as long as you leave it alone for 40 years.

It is foolish to only make a one-time investment.

The annual interest rate does matter when making a one time investment.

All of the above

16.

1 point

If you invest $1,000 at 12% interest, how much money will be in the account after two years, compounded annually?

$1,240

$1,120

$1,300

$1,254.40

17.

1 point

Which of these is not a key to saving money?

Your income

Focus

Making savings a habit and a priority

Discipline

18.

1 point

A sinking fund approach means:

90 days same-as-cash

Saving and paying cash

Buying with credit but paying it off in full before the interest comes due

Buying with credit, getting a low interest rate, and sinking further into debt

19.

1 point

How much money should Lisa and Joe have in their emergency fund if they have a $3,000 credit card bill, a mortgage and their combined income is $35,000?

$1,000

No emergency fund until the credit card is paid off

3-6 months of expenses

10% of their credit card balance

20.

1 point

How much money should you have in your emergency fund if you are working on Baby Step 2 (pay off all debt)?

You should not have an emergency fund until all debt is paid

$500 or $1,000, depending on your current income

15% of your household income

3-6 months of expenses

21.

1 point

The typical American has a ________ savings rate.

Rate of Return

Positive

Negative

Priority

22.

1 point

The percentage by which your money grows is called the ________.

Insurance

Negative

Rate of Return

First

23.

1 point

For most people, a fully funded emergency fund will be about ________ if expenses are about $3500 a month:

$5,000

$1,000

$100-$500

$10,000-$15,000

24.

1 point

Use the ________ approach instead of borrowing to purchase things.

Murphy’s Law

Sinking Fund

Rate of Return

Earner

25.

1 point

A good way to build discipline and get into the habit of saving is:

Avoid daily expenses, such as coffee

Have your parents remind you

Always pack a lunch and save the cost of eating out

Pre-authorized checking

26.

1 point

Murphy’s Law is more likely to strike if you are prepared for the unexpected events that occur throughout life.

True

False

27.

1 point

You should invest 10% of your household income into Roth IRAs and pre-tax retirement plans.

True

False

28.

1 point

The first thing you should save for is your retirement fund.

True

False

29.

1 point

Which statement is true?

Using a credit card is safer than carrying cash around

People spend more money when they pay with cash.

When you pay with cash, you can almost always negotiate a better deal

When you pay with cash, it is hard to negotiate a deal because you didn’t use their credit

30.

1 point

Using the sinking fund approach, how much do you have to save to buy a $5,000 car next year?

$275 a month into savings

$400 a month into savings

$300 a month into savings

$416.67 a month into savings

31.

1 point

A fully funded emergency fund is ________ months of expenses.

3-6

First

Last

1-2

32.

1 point

For which of the following should you save?

Wealth building

Emergency fund

Purchases

All of the above

33.

1 point

Which of the following is not a reason to save?

Purchases

Pay off debt

Wealth building

Emergency fund

34.

1 point

The Baby Steps can best be described as:

A systematic process for getting out of a financial mess.

A series of seven sequential steps that help you plan, save and manage money.

A series of steps that will work in good times and in bad times.

All of the above.

35.

1 point

Place your emergency fund in this type of account.

Amoral

Money Market

Priority

$500-$1000

36.

1 point

If we used a race analogy to describe building wealth, it would be most like a sprint.

True

False

37.

1 point

Pay yourself ________.

First

Last

Rate of Return

Amoral

38.

1 point

Your first “Baby Step” is to pay off all of your debt.

True

False

39.

1 point

Dave’s 80/20 rule says that personal finance is 80% knowledge and 20% behavior.

True

False

40.

1 point

Savings is about:

Making more money and discipline

Pride and greed

Contentment and emotion

Contentment and earning more money