Personal Finance: Budgeting Flashcards
Composition of a Budget
-income
-fixed costs
-short term savings
-variable living costs
the most important aspect of personal finance is your
level of income
fixed monthly expenses
expenses which need to be paid every month. there is no action you can take in the middle of the month to reduce these expenses
examples of fixed monthly expenses
rent, mortgage, utilities
student loans
car payment
credit card payment
streaming services/ cable
mortgage/ rent
-this will be the largest expense you incur
-the biggest driver of this expense, is where you choose to live after college
-when accepting a job offer, keep cost of living in mind
if you work in a city, the three factors will be
- commute
- size/ amenities of apartment
- cost
student loan refinance positive
potentially lower payment (if interest rates are lower)
student loan refinance negatives
-if the government forgives further student loans, it may not help people who have refinanced to private lenders
-it is more difficult to pause payments without negative action from lender
the quickest way to ruin your financial situation is to
accumulate credit card debt
streaming & cable
low cost form of entertainment
short term savings
money that you put aside every check to cover expenses which you know you will incur throughout the year
variable living expenses
expenses which you incur every paycheck, but you are able to make choices in each month to impact the overall amount of these expenses
food, entertainment, “walking around money”
what is a credit score?
a score between 300 and 850 that represents the likelihood that a consumer can repay their debt
excellent: 800-850
very good: 740-799
good: 670-739
fair: 580-669
poor: 300-579
access to credit
auto loans
mortgages
furniture
small business loans
auto loans
typically require a credit score of 660 or higher
mortgages
it is very difficult to secure a mortgage with a credit score below 570
furniture
you can typically secure a loan with very favorable terms from a furniture store if your credit is above 630
small business loans
typically require a personal guarantee from the owner. said owner typically requires a credit score of at least 620
borrowing costs
consumers with higher credit scores will be able to secure lower interest rates
factors that impact credit scores
bill payment history
amount of debt relative to income
credit history
credit inquiries
types of credit
bill payment history
35% of FICO score
-setting bills up on auto pay is the easiest way to manage this
-late payment stay on your credit score for 7 years
amount of debt relative to income
30% of FICO score
-avoid meaningful credit card debt at all costs
credit history
15% of FICO score
-avoid building a substantial balance on said card at all costs
credit inquiries
10% of FICO score
-do not give people permission to run a hard credit check, unless absolutely necessary
types of credit
10% of fico score
-high interest credit card debt negative impacts the score more so than student loan debt
