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Actual personal finance Flashcards

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1
Q

What is personal finance?

A

All the financial decisions an individual or family must make in order to earn, budget, save, spend, and give money over time.

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2
Q

What does it mean to live paycheck to paycheck?

A

A person or household’s monthly income is devoted to expenses, and they have little to no savings.

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3
Q

What is interest?

A

The additional cost a lender charges for borrowing their money.

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4
Q

What is a net income?

A

What a person earns after payroll taxes and other deductions are taken out; aka take home pay

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5
Q

What is net worth?

A

The amount by which the value of a person’s assets exceeds or falls behind the value of their liabilities.

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6
Q

How can avoiding debt give you financial peace and a sense of hope for the future?

A

You do not have to worry about owing money to anyone. You are in control and free to plan for the future.

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7
Q

How do you calculate a person’s net worth?

A

Subtract what you owe (liabilities) from what you own (assets)
Assets - Liabilities = Net Worth

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8
Q

What is a short term goal?

A

A goal that takes up to two years to reach, like an iPhone.

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9
Q

What is a medium term goal?

A

A goal that takes two to five years to reach, like a car.

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10
Q

What is a long term goal?

A

A goal that takes longer than five years to reach, like a house.

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11
Q

Name the 5 foundations in order.

A
  1. Save a $500 emergency fund
  2. Get out and stay out of debt
  3. Pay cash for your car
  4. Pay cash for college
  5. Build wealth and give
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12
Q

What is the importance of the 5 foundations?

A

These money principles will act as your guardrails to keep you on course with your financial action plan.

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13
Q

What is a budget?

A

A written plan for giving, saving, and spending.

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14
Q

What is gross income?

A

The amount you earn before taxes and other payroll deductions.

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15
Q

What is a cash flow statement?

A

A record that summarizes all of the income and outgo (spending) over a certain period of time.

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16
Q

What is irregular income?

A

Income that comes in at different amounts or at different times, or both

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17
Q

What are the 4 basic components of a budget?

A
  1. Income
  2. Giving
  3. Saving
  4. Spending
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18
Q

What are the four different types of expenses?

A
  1. Fixed (same every month)
  2. Variable (different every month)
  3. Intermittent (comes up at certain times of the year)
  4. Discretionary (not essential)
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19
Q

What are 4 different sources of income?

A
  1. Paycheck
  2. Birthday money
  3. Graduation money
  4. Bonuses
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20
Q

What is a zero-based budget?

A

A cash-flow plan that assigns an expense to every dollar of your income; the goal is for the total income minus the total expenses to equal zero.

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21
Q

Why are zero-based budgets the most effective way to budget?

A

A zero-based budget helps you be intentional with paying your bills and planning for spending, and it helps you reach your financial goals.

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22
Q

How do you create a zero-based budget?

A

You calculate your income and expenses. Then you work with it until your income minus your expenses equals 0 zero. You can do this on pen and paper, spreadsheets, or a budgeting app.

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23
Q

What is an emergency fund?

A

A savings account set up specifically to be used to cover financial emergencies.

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24
Q

What is an interest rate?

A

The percentage of principal charged by the lender for the use of its money.

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25
Q

What is accrued interest?

A

The amount of interest charged on a debt but not yet collected; interest accumulates from the date a loan is issued.

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26
Q

What is compound growth?

A

The average rate of growth for an investment over time; often expressed as an annual figure.

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27
Q

What is a principal?

A

The initial amount of money invested or borrowed.

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28
Q

What are the 3 basic reasons to save money?

A
  1. Emergencies
  2. Large purchases
  3. Wealth building
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29
Q

Why is it important to always have an emergency fund?

A

So that when an unexpected expense comes up, you don’t have to worry about where to get the money, busting your budget, or going into debt.

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30
Q

How do you determine if something is an emergency or not?

A

Ask yourself 3 questions
1. Is it unexpected?
2. Is it necessary?
3. Is it urgent?

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31
Q

How will investing early help you build wealth over time?

A

If you get started early and stay consistent, you can just sit back and let compound growth do its thing, making money for you.

32
Q

What is debt?

A

Money owed to another person or company.

33
Q

What is collateral?

A

Something owned (that has value) offered as security in a debt; if the debt is not repaid as agreed, the item is forfeited to the lender.

34
Q

What is equity?

A

The increase in value of a home over time; the difference between the amount owed and what the home could be sold for.

35
Q

What is depreciation?

A

The loss of value of an asset over time

36
Q

What is the relationship between credit and debt?

A

Credit means getting something now and paying for it later. When you have something you need to pay for, that is debt.

37
Q

What are 7 sources of credit?

A
  1. Credit cards
  2. Secured and unsecured loans
  3. Personal loans
  4. Home mortgage
  5. Home equity loans
  6. Student loans
  7. Auto loans
38
Q

What are 3 types of credit?

A
  1. Revolving credit
  2. Collateral
  3. Installment credit
39
Q

What 5 components are used in determining a person’s credit score?

A
  1. Debt payment history
  2. Debt level
  3. New debt
  4. Debt type
  5. Length of debt history
40
Q

What are the 3 main ways the credit card industry makes money?

A
  1. Interest: interest charges
  2. Cardholder fees: Annual fees, over-the- limit fees, late payment fees
  3. Credit card transaction fees: cash advance fees, merchant fees
41
Q

What are 5 strategies to avoid and get out of debt?

A
  1. Snowball it (pay off debts from smallest to largest)
  2. Quit borrowing more money
  3. Start saving money
  4. Sell something
  5. Get a part-time job or work overtime (temporarily)
42
Q

What is consumerism?

A

The theory that spending money and consuming goods is good for the economy

43
Q

What is marketing?

A

The process of communicating the value of a product or service to customers.

44
Q

What is an opportunity cost?

A

The financial opportunity that is lost when you choose to do something else with your money.

45
Q

What is identity theft?

A

The act of fraudulently gaining and using the personal information of someone else, usually for financial gain.

46
Q

Why is it important to control your spending?

A

It is so that you can control your impulse purchase cycle and avoid bad decisions you will regret later.

47
Q

What are 5 common marketing tactics?

A
  1. Retargeting
  2. Content marketing
  3. Influencer marketing
  4. Snack videos
  5. Native advertising
48
Q

What are 6 strategies for making informed decisions about purchasing consumer goods? (SMART)

A
  1. Self-awareness
  2. Motive
  3. Affordability
  4. Research
  5. Timing
49
Q

What should you do if you experience card fraud or theft?

A

Contact your bank immediately, if they haven’t already contacted you.

50
Q

What are credit unions?

A

Nonprofit financial institutions that are owned and operated by their members; offer deposit accounts and lending services similar to a retail bank but at a lower cost

51
Q

What is overdraft protection?

A

An option offered by banks to cover overspending on an account and then charge a fee for it.

52
Q

What is liquidity?

A

How quickly you can access the money in an account or the value of an asset without a penalty or fee.

53
Q

What is a direct deposit?

A

Option to allow automatic electronic deposit of your payroll checks.

54
Q

What is the purpose of financial institutions and their role in personal finance?

A

They help you protect, access, and manage your money. Some even help you earn compound interest. They insure your money.

55
Q

How are banks and credit unions able to make money?

A

Interest on loans, ATM fees, overdraft fees, and account fees and investing customer’s deposit money.

56
Q

How do manage your bank accounts? (4 ways)

A
  1. Track your spending
  2. Track your deposits
  3. Reconcile your account
  4. Balance your checking account
57
Q

What are 5 things to look for when reviewing a bank statement?

A
  1. Records match your bank statements
  2. Transactions not included in your bank statement
  3. Numbers not matching
  4. Fraudulent transactions
  5. Mistakes made by the bank
58
Q

What is a premium?

A

The amount of money paid for an insurance policy.

59
Q

What is insurance?

A

An arrangement in which an individual will receive financial protection or reimbursement of losses from an insurer.

60
Q

What is a deductible?

A

The amount of money you will pay out of pocket before the insurance company will make a payment.

61
Q

What is a Health Savings Account? (HSA)

A

A tax-exempt savings account dedicated to health care costs; only available for individuals on a high-deductible health plan (HDHP)

62
Q

What are 3 ways to lower the cost of insurance premiums?

A
  1. Raising your deductible
  2. Paying premiums once or twice a year instead of monthly
  3. Removing any unnecessary coverage
63
Q

What is the importance of liability protection?

A

It protects your finances and keeps you moving when things go wrong. It covers you if you’re at fault, or liable, for an accident by paying up to the limits you purchased.

64
Q

What are the differences between homeowners and renters insurance?

A

Homeowners: Protection for destroyed or stolen property, the residence, and accidents on the property for an owner
Renters: protection for destroyed or stolen personal property for a renter

65
Q

What are the costs and benefits of health insurance?

A

Costs: It is expensive
Benefits: Helps cover your medical expenses and emergencies

66
Q

What are the 8 necessary types of insurance?

A
  1. Auto insurance
  2. Homeowners or renters insurance
  3. Umbrella insurance
  4. Health insurance
  5. Term life insurance
  6. Long-term disability insurance
  7. Identity theft protection
  8. Long-term care insurance
67
Q

What type of insurance is unnecessary?

A

Supplemental insurance plans

68
Q

What are withholdings?

A

The portion of an employee’s pay held back to cover taxes and other deductions.

69
Q

What is an income tax?

A

Tax paid out by anyone who earns an income.

70
Q

What is a standard deduction?

A

The dollar amount people can subtract from their income before the tax is calculated

71
Q

What is an audit?

A

An official IRS inspection of a tax return to make sure the income and deductions are accurate.

72
Q

What is a sales tax?

A

A tax on goods and services that goes to a state or local government.

73
Q

Why do we pay taxes?

A

Basically, you are paying to be a citizen of the USA, allowing you to access a variety of government services and recourses.

74
Q

What are taxes used for?

A

Roads, public education, social services, and law enforcement.

75
Q

What are the 3 different types of income?

A
  1. Earned income: money you make by working
  2. Passive income: Money you earn on a regular basis that requires little to no effort to keep it going
  3. Portfolio income: money you receive from your investments
76
Q

How can you avoid paying too much or too little in taxes?

A

Set up your W-4 form correctly and tweak it until it is perfect.

77
Q

What are the 3 main types of wealth taxes?

A
  1. Property tax
  2. Inheritance and estate taxes
    a. Capital gains tax
    b. Inheritance tax
    c. Estate tax
  3. Gift tax

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