personal finance Flashcards
gross income
- total amount earned during a pay period
net income
total amount AFTER withholdings (fees)
types of deductions
- FICA: social security
- Medicare
- Taxes: state and federal
- Retirement: employer matching or 401K
Federal income tax
the less you make the lower your % (progressive income tax)
withholdings do not include…
property tax
sales tax
gift tax
estate tax
cost of living
the amount of money needed to cover basic expenses such as housing, food, taxes, and healthcare in a certain place and time period
collateral
the assets which are pledged as security for a loan
commercial banks
a financial institution that accepts deposits, offers checking account services, makes various loans and offers basic financial products like CD’s and savings accounts to individuals and small banks
banks
banks have more adv. for mobile apps and tech and provides more branches
credit unions
are non-profit institutions owned by members collectively offer less options in commercial banking
checking account
an acct held by a bank or credit union that allows the acct. holder to deposit or withdraw cash
savings account
a deposit account held at a bank or other financial instituion that provides principle security and a modest interest rate
liquidity
the efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price
non- bank financial institutions
- finance companies
- investment banks
commercial
- provides services to large corps.
- more competitive and higher paying salary as a career but often work long hours
investment banks
-works w many different clients in the gen. public
- offers a better work life balance but not as high of a salary
money market accts
- higher interest rates than traditional savings acct.
- flexible withdrawls
- minimum acct balance
certificate of deposit
a type of savings account offered by banks and credit unions. You generally agree to keep your money in the CD without taking a withdrawal for a specified length of time
bonds
Bonds are issued by governments and corporations when they want to raise money. By buying a bond, you’re giving the issuer a loan, and they agree to pay you back the face value of the loan on a specific date, and to pay you periodic interest payments along the way, usually twice a year.
stocks
a share in the ownership of a company, including a claim on the company’s earnings and assets
bonds are…
- more stable om the short term
- tend to underperform over the long term and earn money through interest
stocks are…
- more volitile in the short term
- better performers over the long term, earn money through dividends
mutual funds
a managed fund that pools money from shareholders to invest in securities
simple interest
interest earned on the principal investment
compound interest
earning interest on interest
principal
is the original amount of money invested or saved
three c’s of creditworthiness
capacity
character
capital
credit monitoring
whoever is giving you the loan, checks on you to make sure you can pay your bills
credit rating agencies
experian, equifax, transunion
credit score
a # from 300 to 850 that represents a consumers creditworthiness
5 factors that affect your credit score…
- payment history
- credit utlilization
- credit use
- credit mix,
- credit inquires
credit report
- detailed record on financial history
- lists every item in credit history that affects credit score
- assembled into 4 categories: identifying information, credit accts, credit inquiryies and public records
- derived from credit report, single numerical grade of credit worthiness
types of loans
- mortgage
- student loans
- title loans
- payday loans
mortgage
a loan used to purchase or maintain a home, land, or other types of real estate, secured by the property itself
types of mortgages
- conventional - tradition housing loan
- govt.
- fixed rate- results in a predictable, monthly payment
- adjustable rate - subject to market condition, this can work well you dont plan to live in your home for a long time
title and payday loans
typically lowers interest rates (300%) holds vehicles title as collateral, can borrow higher amt. typically 30-day terms, can reposses for non payment
credit cards
-allows cardholders to borrow funds to pay for goods and services w/ merchants that accept cards for paymemt
- can build credit
debit cards
money deducted from your bank acct, helps avoid debt, little to no fees, no interest charges, wont help build credit
investing
deploying capital/towards projects or activities that are expected to generate a positve financial return over time
investing strategies
define, find a stategy, set up an investing workflow
401K
a defined contribution, tax- advantaged retirement savings plan that is sponsered by ones employer
IRA - individual retirement acct.
- a tax- advantaged retirement savings account to which you contribute either pre- or after tax money and which grows on either a tax defined or tax free basis
types of insurance
life, health/medical, home, car
types of LIFE insurance
term, final expense, whole, universal, variable
types of HEALTH insurance
fee for service, HMO, PPO, Medicare, Medicaid
homeowners vs renters insurance
- covers the actual building you live in, more expensive
- landlord pays for the coverage on the actual building, you pay for coverage on personal items
types of car insurance
liabilty , collision, comprehensive
financial goal setting-
- short term- build up an emergency fund and start a small business
- intermediate - pay off all your credit card debt and start investing 20% of your home
- long term- earn enough from your side hustle to cover all expenses
rate of return
the net gain or loss of an investment over a specified time period, expressed as a percentage of the investments initial cost
