Gen Prin: All Other Flashcards
Fin Aid. EFC expected family contribution
Memorize %s
Assets and income in STUDENT’s name is more punitive.
Student assets 20%
(exc Able under 100k excluded)
Student income 50% of amount above 9,410
Parents assets 5.64%
Parent income 22-47% after deduction protected amount
Home equity and retirement assets NOT count
2 year lookback
Education funding overview
See snapshot BIF page
If others will contribute more wait until years three or four
Education. Step 2 education
Interest rate to use
learn shortcut
shortcut is Ex. 8 port, 3 ed infl
8-3 / 1.03
((1+Rp) / (1+Ed inflation rate)- 1) *100
Federal securities legislation thru 1940
Sec of 1933. Primary markets
Sec of 1934. 2ndary mkts
Also established SEC
Glass-steagall. Created FDIC Separated commercial and investment banking.
Fancy glass buildings separate and insure that money
Maloney act 38. OTC mkts
Over the counter like baloney
Federal bankruptcy act of 1938.
Provides for liquidation of hopelessly troubled firms and provides for reorganization of troubled that might survive
Investment COMPANY act of 1940 Extended security laws to INVESTMENT companies/MUTUAL FUNDS
Investment ADVISORS act of 1940
Advisors must register
Required registration for, and regulated activities of, investment advisors
Federal securities regulation after 1940
Mccarran- Ferguson act of 45
Insurance to be regulated at the state level
Remember Karmen’s auto insurance trial in Texas
Securities investors protection act 1970. Est SPIC.. cash up to $250 and up to $500 in securities and cash
Insider trading and securities funds enforcement act of 1988
Gramm Leach Billy act 1999
Privacy info. Remember BG and no meetings in PRIVATE
Us Patriot act of 2001. KYC bc of terrorism money laundering
Requires broker dealers and others to have internal policies procedures controls to meet the end kyc know your customer mandate as an effort against funding terrorism by money laundering
Credit score makeup
List categories and %s
CALMN
35% Credit history
30% Amounts owed
15% Length of credit history
10% credit Mix
10% New credit
Credit scores - FICO
Below 580 is poor
At these or above
580 fair
670 good
740 very good
800 exceptional
850 max
Or remember 580 then Plus 90 then plus 70 then plus 60
Economy. Expansion and contraction indicators
Early expansion
Policy stimulative
Mid
Policy neutral
Late
Policy contractionary
Contraction
Policy eases
Fin Ratios
Roa and roe are EAT
Debt to equity is long-term debt
Debt ratio is TOTAL debt to
Total ASSETS
Tie. Ebit/int exp
For below use 120000,10000
Inventory turnover
Cogs/avg inv
Days to sell
365/turnover
See picture for more
Acceptable investments for emergency fund
Cash, checking and savings,cds, money market mutual funds, t bills, cash value life insurance, lines of credit
I’m surprised at
home equity loans
Cv life
Takes time to get these
Fin Aid. Grants
Pell and FSEOG
Need based
undergrad only
Fin Aid. Direct subsidized loans
needs based
undergrad only
USDOE pays interest
- while in school
- 6 months after (grace period)
- and while in deferrment
Fin Aid. Direct UN subsidized
NOT needs based
all levels (Grad, undergrad)
Fin Aid. PLUS loans
non need, all levels
PLUS is to parent
grad PLUS is to student
CANNOT have adverse credit history
Max = cost of attendance less other fin aid rec’d
Fin Aid. Work study
EmployERs must match fed & state $
Able plans (529 Able)
What affects eligibility for public benefits?
How was it UNlike a college 529
Eligible if disabled or blind before age 26. Must be on SSI, SSID or have dis cert from a Dr
UNlike 529
Contributions limited to 18k
Only ONE account per person
Elig ind is always BEN and OWNER
Amt over 100k affects eligibility for public benefits
SSDI, SNAP, HUD, FAFSA, Medicare/aid
Can roll 529 college into Able
Fin Aid. Maximize
If getting gifts from others, first USE UP students, then parents. B/c you get more aid once your income and assets are down.
Education credit LLC
Up to $2,000 PER RETURN
20% of max 10k
Tuition and fees req for att only
NOT refundable (up to 1k of AOC is)
ALL years of post sec ed AND for courses to acquire or improve skills
Do not need to be degree seeking
Education credits. AOC
Per student. can have multiple on one return.
Partially refundable (40% up to 1k)
Must NOT have felony drug conviction
Tuition, req fees, and materials needed for course of study (books, computers usually)
PHASEOUT
(Upper Limit - AGI) / phaseout range 20k for MFJ * amount otherwise qualify for NOT max
Exam tip. Education
Don’t “double dip”
Select answer that has only ONE tax advantaged account b/c we do not know how much $ and if there is enough for multiple
so if answer has cking, gift, 529. ok
but if cking, gift, 529, AOC - don’t select it UNLESS given amts and know there is enough. CFP checking to see if you know you can’t double dip
College funding
MIght not have to do all parts, read carefully.
Step 1. Compute cost of 1st year in future $
Step 2. Compute PV of the 4 years at beg of Year 1.
Set to BGN mode, annual
Rate is adj for ed infl - see sep card
years is 4 or # IN college
PMT is step 1 amount
Compute PV
Step 3. Compute amount to save. watch for annual, monthly, beg or end of period deposits for mode and n
n = years *12 if monthly
FV is the PV you calc in step 2
CPT PMT or PV if lump sum
Coverdell
Income limits
Annual limits
When. Two ages….
-Income limits. Phaseout starts at 95/190
-Contribute B4 age 18 or sp needs
- use by age 30
-Limited to 2k/year
-Invest in anything at brokerage vs only mf at 529
-K-12 $ no $ limit and can use for tutoring, uniforms etc
Like 529:
Completed gifts not in donor’s estate
Assets of PARENT for Fin Aid
NQ w/d penalties apply
tuition, fees, books,R&B
Nq dist prorated bw earnings and basis
529 college
-No income limit
-No age restrictions
-No $ limit and can elect 5 yr superfunding for gift tax
-ONLY MFs allowed for investments (vs coverdell anything in your brokerage)
-Only up to $10k for K-12 (vs coverdell no limit)
FDIC ownership category
up to 250 per ownership category
Single includes sole prop
Joint per co-owner
Retirement
Corporation, partnership
Revocable trust per ben
Irrevocable trust per noncont ben
Employee benefits
Government officials per official
Remember to take their percentage of those joint ones
Bankruptcy
On record 10 years exc ch 13 7 yrs
Business cycle
Expansion “recovery”
Contraction
Most notably what is happening with GDP and unemployment
Contraction
Early expansion is characterized by
GDP and employment rebound
Credit begins to grow
Profits grow rapidly
Policy is stimulative
Inventories are low and sales improve
Late expansion
Growth moderates
Credit tightens
Earnings under pressure
Policy contractionary
Inventories grow and sales growth falls
Contraction
Falling activity
Credit dries up
Profits decline
Policy eases
Inventories and sales Fall
GDP
Total market value of a country’s income and output of goods and services produced by all the people and companies in the US
Important because it indicates the pace of growth or decline of the economy relative to history
Determines which sectors are over or underperforming
Can compare the size and growth rate of economies throughout the world
Real GDP
Excludes imports, inflation, transactions were money changes hands but no goods or services are produced, excludes income of US citizens working abroad excludes profits earned by us companies in foreign countries
GDP formula
Y=C+I+G+(X-M)
C equals consumer spending
I investment made by industry
G is government spending
X is exports
M imports
Or it might say NE for net exports
Law of supply and demand
It’s what will CAUSE PRICES to rise or fall
If supply is greater than demand prices will fall
If demand is greater than supply prices will rise
Law of supply
An increase in the price will increase the supply because suppliers are willing to supply to consumers when prices are higher
Law of demand
Consumer side
Inverse relationship between price and quantity demanded
Price goes down quantity demanded goes up
Monetary policy
Used to influence the demand side
Controls the money supply
Influences lending rates
May slow down or stimulate the economy
Controlled by the Fed. Tools
-Discount rate the rate at which member banks borrow from the Fed
-Reserve requirement percentage of deposits that must be held on reserve
-Open market activities fed buys and sell securities in the open market and also said some margin percent under regulation t
Fed goals
Maintain sustainable long-term growth
Maintain price levels
Maintain full employment
Supply vs demand
Supply of a particular good depends on
Price
Cost of production including labor
Level of technology
Demand depends on
Price
Prices of other goods especially substitutes
Consumers income and tastes
FisCal policy
Congress controls
Taxation expenditures and debt management
Congress goals
High employment
Sustainable growth
Stable prices
Tools are spending and taxation
Deficit spending
Instead of stimulating the economy it can have the opposite effect through the impact to the bond market
Prime rate
When this is an option regarding monetary policy it is most likely wrong
It can be influenced by the discount rate but is not set by the Fed
Financial statements
Remember that the personal balance sheet has assets at fair market value
I think they just give us a balance sheet and a cash flow
Home buying ratios
Front end. Mortgage debt servicing ratio
Piti\gross income <=28%
Back end. Total debt or debt repayment ratio
(Piti+other debt)/Gross income
<=36%
Consumer debt <=20%
Non housing debt divided by net income
Emergency fund planning
Rules of thumb
Two income household the norm is 3 months or 6 months if both are at the same company
One income household Norm is 6 months
Priority. Rule of thumb
Usually number One financial planning priority is emergency fund
Except if young children life insurance and guardianship
Or except if you have so much debt you can’t save then pay off the debt is priority
Consumer credit protection laws
Consumer credit protection act
Equal credit opportunity act
Fair credit REPORTING act
Fair credit BILLING act
Fair debt collection practices act
Which org oversees all things debt
Consumer financial protection bureau
CFPB
Mortgage financing
Conventional and FHA do not have funding fees
VA and USDA have no down payment and no PMI
FHA has PMI for 11 years or life of the loan. What??
USDA has fixed only
FHA requires three and a half to 20% down
VA has 2.3 to 3.6% funding fees but waived for disabled
See picture for conventional VA FHA USDA
Mortgage in a case study
Look to reduce years and rates, when possible
The argument of taking on the lower monthly payment through a longer or variable rate mortgage and investing the balance makes two huge assumptions
The discipline of the investor
The return of the investor
Mortgage calculations
Make sure that when points rolled into the mortgage balance
You account for them in your calculations
Financial aid alternatives
Home equity loan
Life insurance cash value
Qualified plans
Defer admission
Community college
Also see tier 3 Roth ira, traditional ira, mutual funds
Risk tolerance questionnaire
Helps to identify the loss aversion bias. Where losses are perceived as more severe than an equivalent gain
How are 529 and Coverdell distributions treated for financial aid
They are NOT added back as income on a financial aid application
What is an automatic stay
And what is halted or not
An order to creditors to halt action
It stops foreclosures of property repossessions and sales of property while repayments are made
It does not stop child support, alimony or criminal suits
Criminal suits are not halted
