Final Exam Flashcards
Personal Finance
all the financial decisions an individual or family must make in order to earn, budget, save, spend, and give money over time
Paycheck to Paycheck
an expression used to describe a person or household whose monthly income is devoted to expenses and has little to no savings
Interest
the additional cost a lender charges for borrowing their money
Net Worth
the amount by which the value of a person’s assets exceeds or falls behind the value of their liabilities
Net Income
what a person earns after payroll taxes and other deductions are taken out; often referred to as take-home pay
Describe how avoiding debt can give you
financial peace and a sense of hope for the
future (4)
- finances aren’t burdened by interest and loan repayments
- more freedom in your budget
- allow you to save more, invest, or spend on things that are important to you.
- being debt-free can reduce financial stress and bring a sense of hope.
Identify assets and liabilities to be able to
calculate a person’s net worth.
To calculate your net worth, you subtract your total liabilities from your total assets.
assets will include your investments, savings, cash deposits
Total liabilities would include any debt
Distinguish between short-, medium-, and
long-term goals.
Short-term goals can be achieved in fewer than two months. Medium-term goals may take from two months to three years to achieve. Long-term goals require three or more years to achieve
Understand the Five Foundations and the
importance of their order.
Save a $500 emergency fund.
Get out of debt/loans.
Pay cash for your car.
Pay cash for college.
Build wealth and give.
Budget
a written plan for giving, saving, and spending
Gross Income
the amount you earn before taxes and other payroll deductions
Cash-Flow Statement
a record that summarizes all of the income and outgo (spending) over a certain time period
Irregular Income
income that comes in at different amounts or at different times, or both
Understand the basic components of a budget.
net income, fixed expenses, flexible expenses, and discretionary spending/expenses.
Identify sources of income and the four
different types of expenses.
Your income is any money you earn or receive as a gift.
Fixed Expense
Variable Expense
Intermittent expenses
discretionary expenses
Define zero-based budget and understand why
it’s the most effective way to budget.
Zero-based budgeting is a way to plan how you use each dollar you earn. This budgeting style may give you greater insight into your finances and provides you the flexibility to customize your budget each month.
Emergency Fund
a savings account set up specifically to be used to cover financial emergencies
Interest Rate
the percentage of principal charged by the lender for the use of its money
Accrued Interest
The amount of interest charged on a debt but not yet collected; interest accumulates from the date a loan is issued
Compound Growth
the average rate of growth for an investment over time; often expressed as an annual figure
Principal
The initial amount of money invested or borrowed
Explain the three basic reasons to save money.
to build an emergency fund, to pay cash for purchases, and to build wealth.
the importance of always having
an emergency fund as part of your financial
plan
The purpose of an emergency fund is to have enough cash on hand to cover an unexpected expense. This protects you from having to pile up debt or going without a necessity when something goes wrong.
how to determine if something is an
emergency or not.
is it unexpected?
is it necessary?
is it urgent?
Understand that investing early will help you
build wealth over time.
When it comes to building wealth for the future, you need two things: money consistently invested and time for it to grow.
Debt
money owed to another person or company
Relationship between credit and debt
Credit is money you borrow from a bank or financial institution. The amount you borrow is debt.
collateral
something owned (that has value) offered as security on a debt; if the debt is not repaid as agreed, the item is forfeited to the lender
Sources of credit (8)
- Credit cards
- (un)secured loans
- Personal Loans
- Home Mortgage
- Home Equity Loans
- Student Loans
- Auto Loans
information used in determining a person’s credit score.
Debt Payment History - 35%
Debt Level - 30%
New Debt - 10%
Debt Type - 10%
Length of Debt History - 15%
Ways that Credit Card companies make money (6)
- Interest
- Cash Advance Fees
- Annual Fees
- Over-the-Limit Fees
- Late Payment Fees
- Merchant Fees
Depreciation
the loss of value of an asset over time
How to get out and stay out of Debt (5)
- $500 Emergency Fund
- Pay off the smaller loans first
- Stop borrowing money
- Sell something
- Get a part-time job or work overtime
Equity
the part of your home you own
Consumerism
the theory that spending money and consuming goods is good for the economy
the importance of controlling your spending and avoiding impulse buying in your financial plan.
Americans spend $2,100 on impulse purchases, and they experience buyer’s remorse
Marketing
the process of communicating the value of a product or service to customers
Identify a variety of common marketing tactics (6)
- Personal Selling
- Product Placement
- Brand Association
- Sales and Promotions
- Convenient Payment Methods
- Financing
Opportunity Cost
the financial opportunity that is lost when you choose to do something else with your money
Identify strategies for making informed decisions about purchasing consumer goods (3)
- Don’t buy an extended warranty
- Return any defected items
- If it sounds too good to be true, it probably is
Identity Theft
the act of fraudulently gaining and using the personal information of someone else, usually for financial gain
what you should do if you experience card fraud or theft (2)
- Check your account often to see if there’s any odd purchases
- Contact your bank immediately
Evaluate the purpose of financial institutions and their role in personal finance (2)
- Banks help you protect, access, and manage your money
- The FIDC and NCUA insure you money
Credit Unions
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
how banks and credit unions are able to make money (3)
- Services such as overdraft protection
- Fees and extra costs
- Membership Fees for credit unions
Overdraft Protection
an option offered by banks to cover overspending an account and then charge a fee for it
Liquidity
how quickly you can access the money in an account or the value of an asset without a penalty or fee
how to manage your bank accounts (4)
- Checking Account Register
- Track your spending
- Track your deposits
- Balance with your records and your banks
Direct Deposit
option to allow automatic electronic deposit of your payroll checks
Insurance
an arrangement in which an individual will receive financial protection or reimbursement
of losses from an insurer
Premium
the amount of money paid for an insurance policy
Identify ways to lower the cost of insurance premiums (2)
- Raise Deductibles
- Pay once or twice a year instead of monthly
Explain the importance of liability protection (2)
- Even if you’re a perfect driver, others aren’t
- Most states require some liability insurance
Explain the differences between homeowners and renters insurance
Homeowners covers the building as well, renters only covers your personal items
costs and benefits of health
insurance (3)
- Health Insurance is necessary to cover medical expenses, the #1 cause of bankruptcy
- Theres a lifetime cap
- It costs a lot
Health Savings Account (HSA)
a tax-exempt savings account dedicated to health care costs; only available for individuals on a high-deductible health plan (HDHP)
Beneficiaries
people who are designated by the policyholder to receive the death benefit of a life insurance policy
necessary and unnecessary types of insurance
Supplemental insurance isn’t needed if you have health insurance, a health savings account, and an emergency fund
Withholdings
the portion of an employee’s pay held back to cover taxes and other deductions
why we pay taxes in the United States and how taxes are used
To pay for services such as roads, parks, government programs
Explain different types of income (3)
- Earned Income
- Passive Income
- Portfolio Income
Income Tax
tax paid out by anyone who earns an income
ways to avoid paying too much or too little in taxes
File taxes before deadlines
Find you tax liability
Standard Deduction
the dollar amount people can subtract from their income before the tax is calculated
Audit
an official IRS inspection of a tax return to make sure the income and deductions are accurate
differences between the various types of wealth taxes (4)
- Property Tax
- Inheritance Tax
- Estate Tax
- Gift Tax
Sales Tax
a tax on goods and services that goes to a state or local government
