Save or splurge? Take this quick quiz to see how well you are prepared to set (and reach!) a savings goal.
1) What does it mean to “pay yourself first”?
a. Treating yourself to a financial splurge once a month
b. Spending a percentage of your earnings on things you want now
c. Making saving the top priority of your budget
2) Who ends up with more money: Keisha, who invests $1,000 a year for 20 years, or Kevin, who invests $2,000 a year for 10 years? (Assume they earn the same rate of interest, compounded annually, and withdraw their money at the end of the period.)
c. They end up with the same amount.
3) How much money should you keep in your emergency fund?
a. 3 percent of your current salary
b. The equivalent of three months’ living expenses
c. Nothing—you can use your credit card in emergencies.
4) Where is the best place to keep your savings?
a. In a bank or credit union savings account
b. In a locked safe in your bedroom
c. In a mutual fund
5) How can you save if you have no money left over at the end of the month after paying essential bills?
a. Sadly, you probably can’t.
b. Each month, skip one bill that’s due.
c. Save when the month starts.
- c. You don’t need to earn a big salary to attain financial freedom tomorrow. But you do need to start making smart financial choices today. That means putting saving first—not last—on your list of budget priorities and setting aside a percentage of your income every month to save or invest.
- a. Even though they both invest the same amount of money overall, Keisha would end up with more. That’s because her account had an additional 10 years of compounding. In fact, if they both earned 8 percent annually on their accounts, Keisha would end up with nearly $49,500 – almost 2 ½ times as much as she’d invested – while Kevin would end up with $31,300.
- b. As soon as you start pulling in a paycheck, one of your top priorities should be to save at least three months’ living expenses for emergencies.
- a. A bank or credit union savings account is ideal for your savings. Each account is insured against loss (up to $250,000 per account holder per institution), so within those limits you won’t lose any principal. Nobody but you can withdraw money from your account. And any interest it earns can compound to increase your balance.
- c. You can always find at least some money to save by making saving part of your budget and paying yourself first from every paycheck. You may not be able to save as much as you’d like if you have debts to pay off, but it’s better to save a little than nothing at all.
So, how did you do on this quiz? Whether you got them all right or just a few, it’s never too late (or early) to start working towards these savings goals.
Wake Forest utilizes CashCourse—a free, online financial education resource designed specifically for college and university students. CashCourse equips students with information that helps make informed financial decisions, from orientation to graduation and life after college. All members of the Wake Forest community—students, faculty, and staff—can create an account at www.cashcourse.org and gain access to articles with financial tips, budget wizards with customizable templates, financial calculators, featured videos on money management, and an ‘ask the experts’ section.
Take advantage of this free, self-paced online resource today!
by Lauren Trethaway