Assignment 4: Saving and Investing
1. Describe a real or made up but realistic situation that could cause you or someone you know to have to use money from a financial reserve. (3-6 sentences. 2.0 points): having to get a car. Another situation could be house repairs.
2. How many months' worth of expenses do you think your financial reserve should include? Describe at least two reasons for this decision. (3-6 sentences. 2.0 points): 6 months because I could lose my job. It will make me go into my financial reserve. I may also have to pay medical bills because someone got sick or injured.
3. Would you rather have a savings account that offered simple interest, or an account that offered compound interest? Why? (3-6 sentences. 2.0 points): compound interest. Over time the compound interest will build up more interest in the account. In time, the interest generates its own interest.
4. If you were opening a savings account with compound interest, would you prefer an account that offers annual compounding, quarterly compounding, or daily compounding? Why? (3-6 sentences. 2.0 points): Daily compounding would give the best annual return, as the amount would grow faster than annual or quarterly compounding. Each day the savings grow a little bit, building upon the growth from the previous days.
5. Which strategy for saving do you think would work best for you? Why? (3-6 sentences. 2.0 points): Make a monthly budget and save a percentage of what is left over after bills and groc eries. I set up an automatic monthly transfer from checking to savings. That way I won't forget and spend that money on something.
6. Describe two financial goals that you would want to meet before you begin investing. Explain why you would want to reach those goals first. (2-4 sentences. 2.0 points) I would first want to create an emergency fund with enough money to live on for months, if I were to be fired from my job or have a family emergency.
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