Question 1

What should you do to accumulate wealth?

Accepted Answer

All of these choices are correct because accumulating a surplus, starting to save as early as possible, and keeping your money working for you are fundamental principles for building wealth.

Question 2

To accumulate wealth, you need to generate a(n)

Accepted Answer

To accumulate wealth, you need to generate a surplus, meaning you spend less than you earn, allowing you to save or invest the difference.

Question 3

Which of the following is the recommended targeted savings rate if you wait until age 40 to start saving?

Accepted Answer

Starting to save for retirement at age 40 means you have less time to accumulate the necessary funds, so a higher savings rate is recommended. Financial experts often suggest aiming for a savings rate of 20% or more to adequately prepare for retirement when starting at this age.

Question 4

Which of the following is what employers pay for an employee to work, typically on an hourly basis?

Accepted Answer

Wage is the term used to describe what employers pay employees, typically on an hourly basis. Salary, on the other hand, usually refers to a fixed annual amount, regardless of hours worked.

Question 5

Which of the following may result from spending beyond your income?

Accepted Answer

Spending beyond your income typically leads to more borrowing to cover the deficit between income and expenses, as savings are depleted and liabilities increase.

Question 6

Which of the following refers to the money left over after all of your expenses have been paid?

Accepted Answer

Surplus refers to the amount of money that remains after all expenses have been paid. It indicates that income exceeds expenditures.

Question 7

Which of the following indicates the percentage of your income that you are spending to pay down your debts?

Accepted Answer

The total debt-to-income ratio is a measure that compares your total monthly debt payments to your gross monthly income, indicating the percentage of your income that goes towards paying off debts.

Question 8

Which of the following is a payment for a set period of time, typically a year?

Accepted Answer

Salary is typically paid over a set period of time, often annually, and is not directly dependent on the number of hours worked.

Question 9

Which of the following is the recommended targeted savings rate if you are between age 30 and 40?

Accepted Answer

Financial planners often recommend a savings rate of at least 15% of your income if you are in your 30s to 40s, to ensure a comfortable retirement. This includes contributions to retirement accounts and other savings.

Question 10

Which of the following is the total debt-to-income ratio?

Accepted Answer

The answer of Which of the following is the total...

Question 11

Which of the following is the recommended targeted savings rate if you are under age 30?

Accepted Answer

The answer of Which of the following is the recommended...

Question 12

Which of the following refers to your income before any taxes or other expenses are deducted from your paycheck?

Accepted Answer

Gross income refers to the total amount you earn before any taxes or other deductions are taken out of your paycheck.

Question 13

Which of the following is a payment based on the sale of a product or service?

Accepted Answer

Commissions are payments made based on the sale of a product or service, often calculated as a percentage of the sale amount.

Question 14

Which of the following can help you calculate savings ratio?

Accepted Answer

The answer of Which of the following can help you...

Question 15

Which of the following refers to having your employer take money automatically from your paycheck and contribute it directly to a retirement savings plan or a savings account?

Accepted Answer

Payroll deduction is the process where an employer deducts money from an employee's paycheck and contributes it directly to a designated account, such as a retirement savings plan or a savings account, often before taxes are applied.

Question 16

Which of the following describes all sources of money obtained by individuals and households?

Accepted Answer

Income encompasses all sources of money obtained by individuals and households, including wages, bonuses, Social Security benefits, and other earnings.

Question 17

Which of the following refers to expenses exceeding income?

Accepted Answer

A deficit occurs when expenses exceed income, leading to a shortfall in finances.

Question 18

Which of the following refers to compensation received for services performed for an employer?

Accepted Answer

Earnings refer to the compensation received for services performed for an employer, typically in the form of wages or salary.

Question 19

Which of the following is the same as savings ratio that you will try to attain over a specific time period?

Accepted Answer

The targeted savings ratio is the specific proportion of income that an individual or organization aims to save over a certain period, aligning with the concept of a savings goal or ratio one aims to achieve.

Question 20

Which of the following indicates the percentage of income that you are actively saving?

Accepted Answer

The savings ratio indicates the percentage of income that you are actively saving, reflecting how much of your income is being set aside for future use rather than being spent.

Quiz 3: Earnings and Income: the Building Blocks of Your Financial Journey