Question

1. Explain compounding and compound interest when dealing with savings. How do these 2 concepts affect one's saving ability? ( This question does not apply to loans and credit cards and the interest that can be applied there.)

2. List 5 good financial decisions.

    List 5 bad financial decisions.

3.What are some components of a balance sheet? Why is your net worth important for you to know?

4.Explain the difference between fixed expenses and variable expenses in a personal budget. Where can most people make positive changes in their budget?

5.List 5 suggestions for effective budget control

Answer 1

1. compounding: compounding is a process where an assets earnings either from capital gains or interest is reinvetsed to generate additional earnings. this growth occurs because the investment will generate earnings both from the principal and the accumulated earnings from the previous periods.  

compound interest :compound interest is the interest calculated on the initial prncipal and also of the accumulated interest from the previous period deposit or loan.

obviously our savings are accumulated into a larger amounts due to the effect of compounding and compound interest generates additional interest on the invested principal.

2. 5 good decisions :

a. Savings

b. paying off debt

3. purchasing a home

4. insurance

5.investing

bad financial decisions:

1. confusing long term with short term investing.

2. hanging on too an investment for too long.

3.paying too much loan on home loan

4.spending money that you dont yet have.

5.buying things you need ahead of time.

3. components of balance sheet :

assets, liabilities and owners equity. net worth provides a snap shot of the financial condition at a given period of time. When assets exceed liabilities, the net worth is positive. When liabilities exceeds assets, the net worth is negative.

4. Fixed expenses in a personal budget is ; Rent, electricity, children school fees, buying food items.

variable expenses: going shopping, dining out,buying something you were wishing for a long time.

we can make positive changes on our budget by not spending too much on items we do not require currently.