Housing and Transportation Flashcards
Give examples of direct costs for housing.
PTI- Principle, Interest, Taxes, and insurance
Utilities: Electricity Bill, water, natural gas, replacing broken roof
Give examples of indirect costs
Keeping up with the Jones: Your neighbor got a new door, so you now buy a new door. (Works with UPGRADES too)
- Furniture
- Interior Decorations
Provide traditional housing options
duplex, apartment, single family house, condo
***List the three ways to obtain traditional housing
Rent
Mortgage/ Buy
Build
Pros/cons for owning a single family dwelling or condo
Pros:
- freedom to change whatever you want
-Build Equity
-Mortgage interest deduction– claim for an itemized deduction
-Community + Security
Cons
- High upfront cost
-High recurring costs (repairs, etc..)
-Risk depreciation*
Define mortgage
Loans specifically taken out for a home to help you build equity
Define interest rate
cost to borrow from the bank, usually a 6.5 % interest rate on mortgage
Define down payment
The percent you pay of the home’s principle cost
Define escrow***
When the bank pays taxes, insurance using the money you give. Wrapped up into one mortgage payment.
- not mandatory in most stats
Explain the difference between a 15 year fixed and a 30 year fixed mortgage.
- 15 year loan has less interest, and the total interest payment is less than the 30 year
- 30 year loan has more interest, but the monthly payment is less than the 15 year
What is private mortgage insurance?
(AKA PMI), a fee a bank charges until you have 20% equity. You will pay this in addition to a higher interest rate on your loan
Threshold for how much of your monthly income your house/rent payment should be
25%-30% housing cost from income
List 5 expenses associated with home ownership***
Mortgage payments
Property taxes
Homeowner’s insurance
Utilities
Principle?
How does your credit score play a role in home ownership?
A high FICA score= favorable loan rates because banks are willing to do business with you
Explain different ways to reduce your expenses when it comes to housing.***
- Fewer Indirect Purchases
- Pay 20% down payment
- 15-year mortgage rather than 30 year mortgage
- Don’t borrow to upgrade, Save.
Understand the Housing Market
Keeping up with the jones’ can be
consumerist. Be careful to only buy what you can afford
Define depreciation
Decrease in value as soon as bought/ driven off the lot.
- 25%
Define opportunity cost, state an example
The loss or potential gain from using another alternative. In other words, it is the risk you take by not buying or buying a vehicle. ALSO, what you lose by purchasing something else.
- The opportunity of buying a used car over a new car= it might break down (-) or the car loans are cheaper (+)
Identify the number and type of expenses associated with car ownership
7 total costs
MSRP
Insurance (mandatory)
Maintenance
Repairs
Taxes
Fees
Financing
Define MSRP: negotiable or non-negotiable?
Car [Manufacturers suggested retail price. what companies like Ford or Honda say dealers should charge for their vehicles. The actual selling price may be higher or lower than the MSRP. It is negotiable because a customer has the opportunity to bargain for a lower price than the list price.
Define lease and share some characteristics of leasing**
A car lease is a popular type of auto financing that allows you to “rent” a car from a dealership for a certain length of time and amount of miles.
- monthly
- at the end you can return the car or buy out your lease to own the car (car leasing can be done to figure out if you want to keep a car or not)
Explain why depreciation matters with a car (there will the chart to use**)
Depreciation matters because it is a part of the REAL COST of transportation.
Explain why opportunity cost comes up with car ownership
EMPAHSIS ON RISK (?). Car ownership is a risk you take by not buying or buying a vehicle.
Car insurance
Financial safeguard for your vehicle in case of accidents, theft, or other incidents beyond your control.
- Mandatory. If found without, you can get fined or license suspended
Principle (Insurance)
$ paid for the policy a month
Deductible
$ you need to pay before insurance starts paying after an accident
- ALT: What you pay out of pocket towards covered claim.
- You have until the full calendar year to pay your deductible.
Five goals to achieve fin literacy or independence (dfk)
- Know your Why!
- Maximize income
- Minimize expenses
a. Ignore taxes, not invade taxes - Wisely invest the difference
- Track your money***
Net income
earned income minus taxes and deductions
How to calculate savings rate
[(Gross annual income - expenses)/ (Gross annual income) ] x 100
Savings rate
percentage of your income your saving
Net worth
assets - liabilities
Debt vs Credit
Debt = money going out your account (rent) , Credit = money going into your account (paycheck)
3 categories for expenditure
- Spending
- Savings
- Giving
Types of asset classes and ex
fixed income (bonds and annuities)
cash (CDs, T-bills)
equities (mutual funds)
alternative commodities (real estate)
How to calculate tax liability
(earned income - adjustments and exemptions)= Adjustment GRoss income - standard/itemized deduction= taxable income- tax bracket shit= tax liabilities - credits = tax liability #2
What are examples of maitenence on a car?
- oil change
-rotate your tire
-brake fluid
What are examples of repairs on your car?
-wheel alignment
-spark plug
What are credit scores
Predict your behavior to pay on time and in full
High Credit Score= better mortgage and interest rates
Pros of renting
-Lifestyle flexibility
-freedom from mortgage
-low upfront cost and recurring costs
Cons of renting
-no asset owned at the end
-landlords rules
-limited housing
-limited privacy
Amortization
The process of paying off debt with regular payments
