Fundamentals Fin. Planning

Question 1

What % should consumer debt payments not exceed?

Answer 1

20% of NET Income

Question 2

Housing debt should be less than or equal to….

Answer 2

28% of Gross Income

Question 3

Housing plus all other recurring debt should be…

Answer 3

Less than or equal to 36% of GROSS Income

Question 4

Calculate Housing Ratio

Answer 4

Monthly Housing Costs, (Prin+Int+Taxes+Ins)/Monthly Gross Income
28% or less

Question 5

Calculate Housing & All Other Debt Ratio

Answer 5

Monthly Housing Costs, [(Prin+Int+Taxes+Ins) +All Other Recurring Debt Payments]/Monthly Gross Income
Ratio should be 36% or less

Question 6

How do you calculate Annual Savings Ratio?

Answer 6

Annual Savings (Employee+Employer Contributions)÷Annual Gross Income

Question 7

What is the Annual Savings benchmarks by age of client?

Answer 7

Before age 32, 10-12% of Gross Income

Between 45-50, 20-25% of Gross Income

Question 8

Who qualifies for Federal Pell Grant?

Need based?

Answer 8

Undergrad and students who haven’t earned professional degree qualify.
Need based.

Question 9

Who qualifies for Stafford Loans (Fed Direct Loans)?

Need based?

Answer 9

For all students & parents. Only need based if subsidized where Dept of Education pays interest while student’s in school.

Question 10

Who qualifies for PLUS Loans?

Need based?

Answer 10

Parent Loans for Undergrad Students (PLUS) are for parents who have funds to repay loan. Not need based.

Question 11

Who qualifies for Grad PLUS Loans (PLUS Direct)?

Need based?

Answer 11

Graduate or professionals who are enrolled at least half-time in eligible school qualify. Not need based.

Question 12

Who qualifies for Federal Perkins Loan?

Need based?

Answer 12

For students in low income to low middle income tax brackets. Need based.
Program expired on 09/30/2017.

Question 13

What is criteria for American Opportunity Tax Credit (AOTC) & what is the credit?

Answer 13

AOTC can only be used for qualified expenses for 4 yrs of undergrad. Credit gives 100% of first $2k and then up to 25% of second $2k for a total of $2,500/yr PER STUDENT.

Question 14

What is criteria for Lifetime Credit & what is the credit?

Answer 14

Lifetime Credit can be used for any qualified expenses for undergrad, graduate, or professional programs. Credit is 20% of up to $10k for a total of $2,000/yr PER FAMILY.

Question 15

What event occurs when the economy is in a recession?

Answer 15

GDP declines 6/2 (6 consecutive months or 2 quarters).

Recession (6/2) and Depression (18/6) time ratio equals 3.

Question 16

What event occurs when the economy is in a depression?

Answer 16

GDP declines 18/6 (18 consecutive months or 6 quarters).

Recession (6/2) and Depression (18/6) time ratio equals 3.

Question 17

What is the discount rate and the Fed Funds rate?

Answer 17

Discount rate is the rate that banks borrow money from the Fed Reserve for.

The Fed Funds rate is the overnight rate that banks borrow money from other banks for.

Question 18

What are the 4 tools the Fed has to influence money supply & interest rates?

Answer 18

1. Reserve Requirement
2. Discount Rate
3. Open Market operations (buy/sell Treasuries)
4. Excess Reserves

Question 19

What debts aren’t discharged in Chapter 7 Bankruptcy?

Answer 19

• Student & Gov. loans
• 3 yrs of back taxes
• Alimony & Child support
• Money owed (from malicious acts, drunk driving, criminal fines/penalties, debt due to fraud, or embezzlement)

Question 20

What assets are exempt from creditors when filing Chapter 7 Bankruptcy?

Answer 20

• Homestead property
• Life insurance
• Qualified plans (unlmtd coverage)
• Contributory Trad/Roth IRAs up to $1.362M, converted IRAs (unlmtd coverage)