International Baccalaureate (IB) Practice Exam

What is the easiest way to build savings for an emergency fund?

1. Manually saving each month

2. Setting up automatic account transfers

3. Investing in stocks

4. Using cash only for purchases

The correct answer is: Setting up automatic account transfers

Building savings for an emergency fund can be most effectively achieved through setting up automatic account transfers. This method ensures that a fixed amount of money is regularly transferred from your checking account to a savings account without the need for manual intervention. By automating this process, individuals are more likely to consistently contribute to their savings, as the transfers happen automatically. This approach helps to build discipline and reduces the temptation to spend the money before saving it. Furthermore, automatic transfers can be aligned with paydays, making it easier to budget and secure funds for emergencies before any discretionary spending takes place. Other methods, while potentially effective, do not offer the same ease and reliability. Manually saving each month requires consistent effort and may be more susceptible to fluctuations in spending habits. Investing in stocks carries risk and is not typically advisable for emergency funds, which need to be accessible and stable. Relying solely on cash for purchases may limit spending flexibility but does not actively contribute to building an emergency fund.