2. What is the primary purpose of saving up for a large purchase?

• A. To ensure you spend money impulsively
• B. To reduce the value of your savings over time
• C. To increase your monthly expenses
• D. To avoid taking on unnecessary debt and pay for the item in full

Answer: (D)

Verified step by step guidance

1. Understand the concept of saving for a large purchase: Saving money for a large purchase allows you to accumulate the necessary funds over time without relying on loans or credit, which can lead to unnecessary debt.
2. Recognize the benefits of avoiding debt: By saving up, you can pay for the item in full, avoiding interest payments and financial strain associated with borrowing.
3. Consider the impact on financial planning: Saving for a large purchase encourages disciplined budgeting and helps you prioritize your financial goals effectively.
4. Evaluate the alternatives: Compare the benefits of saving versus borrowing, noting that saving reduces long-term financial obligations while borrowing increases monthly expenses due to interest payments.
5. Apply this principle to real-life scenarios: Think about how saving for items like a car, vacation, or home appliance can help you maintain financial stability and avoid impulsive spending.