Basics Beginner: Financing a Major Purchase

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Choose wisely. There is only one correct answer to each question.

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Review your answers below to learn more.

If you want to save for a big purchase over the long term, which of the following options is likely to fluctuate in value the least?

Real estate

Stocks

Certificates of deposit

Mutual funds

Certificates of deposit. As a general rule, certificates of deposit are the least likely of these to fluctuate in value.

Which of the following statements is true?

"Paying yourself first" means setting aside a reasonable amount of spending money to last the entire month.

Paying cash for everything we buy is not always the best option, because interest paid on borrowed money may be tax-deductible.

Expenses may be characterized as either fixed or non-discretionary.

Experts recommend building an emergency fund equal to three to six months worth of living expenses.

Experts recommend building an emergency fund equal to three to six months worth of living expenses. An emergency fund should be your first savings priority, in case an unplanned major purchase becomes necessary. All of the other answers are false.

A major purchase is a _______ expense.

Fixed

Variable

Neither

Variable. It is variable because you dont normally buy it on a regular basis.

Budgeting for a major purchase has many advantages; one of them is that _______.

You may be able to avoid the use of debt.

You will always get a lower price by budgeting.

Both of the above

You may be able to avoid the use of debt. Avoiding debt can save you a lot of money, as well as give you time to think over the purchase.

A home equity line of credit is the same thing as a second mortgage.

True

False

False. The two are different. The former involves a revolving line of credit, while the latter involves a fixed amount of money repaid over a fixed period.