Money Basics
Personal finance is 20% _____ and 80% _____.
Head knowledge; behavior
What is the First Foundation?
Save a $500 emergency fund.
Something you own that has value is called what?
An asset.
True or False: A credit card gives you extra money.
False. Credit is borrowed money.
What are the two basic money personalities discussed in Chapter 1?
Saver and spender.
What does it mean to "live on less than you make"?
Spend less money than you earn.
What is the Second Foundation?
Get out of debt.
Money that you owe is called what?
A liability.
What can happen when you only make minimum payments on credit card debt?
You stay in debt longer and can pay more in interest.
Is being a saver automatically better than being a spender? Why or why not?
No. Both have strengths and weaknesses.
Mason earn $400 this month and spends all $400. What important thing is he failing to do?
Save/leave money for emergencies or future goals.
You want to buy a vehicle without getting a car loan. Which Foundation are you following?
Foundation 3: Pay cash for your car.
What is the formula for calculating net worth?
Assets − Liabilities = Net Worth
Why is an emergency fund helpful when an unexpected expense happens?
It allows you to pay for the emergency without borrowing or going into debt.
You want to buy something four years from now. Is this a short-, medium-, or long-term goal?
Medium-term goal.
Why does behavior have such a large impact on personal finance?
Knowing what to do doesn't matter if you don't actually practice good money habits.
You're planning for college and don't want student loans. Which Foundation applies?
Foundation 4: Pay cash for college.
You have $15,000 in assets and $9,000 in liabilities. What is your net worth?
$6,000
Give one reason borrowing money for college became more common over time.
College became more expensive and student loans became more widely available.
Why is knowing whether you're naturally a saver or spender helpful?
It helps you understand your strengths and weaknesses and make a better financial plan.
Name three behaviors that can help someone manage money effectively.
Possible: Budget, save, spend less than you make, avoid debt, plan purchases, set goals.
Name all Five Foundations in order.
1. Save a $500 emergency fund. 2. Get out of debt. 3. Pay cash for your car. 4. Pay cash for college. 5. Build wealth and give.
You have $12,000 in assets and $17,000 in liabilities. What is your net worth, and is it positive or negative?
−$5,000; negative net worth.
Give two examples showing how debt has become normalized in American life.
Possible: car loans, student loans, credit cards, mortgages, financing purchases, buy-now-pay-later.
Compare the three types of financial goals and their time frames.
Short-term: up to 2 years. Medium-term: 2–5 years. Long-term: more than 5 years.