Personal finances and budgeting Flashcards
Where should emergency funds go?
savings account
Describe a money market account.
Has a minimal balance requirement, restricted access to the money (6 withdrawals per month).
Higher interest than savings account
What type of account has higher interest rates if you keep money invested for a set period of time?
certificate of deposit (CD)
(true/false) Credit unions are for-profit.
FALSE (non-profit)
(true/false) Commercial banks are non-profits.
FALSE
What kind of bank account has lower fees and better interest rates on savings accounts and loans?
Credit union
(credit union/commercial bank) Which one offers more options for banking, retirement, and investment?
commercial banks
What is the main reason why you should start saving early?
Compounding interest
What does the Rule of 72 do?
Helps figure out how soon your investment will double using a specific interest rate
–> divide the interest rate into 72 and it will tell you how many years it will take to double
(credit/debit) cards come directly against your checking account and cannot be used to build credit
debit cards
(credit/debit) cards have no interest associated with use of it
debit cards
(credit/debit) cards have better protection from fraud compared to the other
credit
What is a credit score?
a measure of your credit worthiness.
When you apply for credit, the lender will request your credit score from each of the 3 credit bureaus… what are they?
Equifax, Experian, Transunion
(true/false) if you do not have a good credit score, your interest rate will be higher
true
What are the 5 components of a credit score?
Amounts Owed
Payment History
Length of Credit History
New Credit
Credit Max
What is the range of a good credit score?
670-800+
What is considered as a poor credit score?
< 579
What is the average score of 21-34 y/o?
634
What is the average credit score for a 35-49 y/o?
655
What is the average credit score for a 50-69 y/o?
700
What is the average credit score for a 70+ y/o?
730
What is it called when you get added to someone’s credit card?
authorized user status
Secured credit cards are backed by what? Why is this?
cash deposits –> gives you a chance to borrow and pay back money with a safety net
(true/false) Federal student loan interest rates are NOT based on the credit of individual borrowers, and they stay the same over the course of the loan.
true —> interest rates are fixed
What type of federal loan is based on need?
direct subsidized
–> Government pays interest as long as the borrower is enrolled in school at least half the time.
what type of loan will cover interest payments for up to 6 months after graduation (grace period)?
direct subsidized
What federal loan is not based on financial need?
direct unsubsidized
How does direct subsidized and unsubsidize differ?
With direct unsubsidized loans, borrowers are responsible for paying interest that accrues during school, grace periods, and deferments.
What federal loan is specifically for graduate students and professional students, or parents of undergrad students and is based on attendance costs and other financial aid the borrower receive?
direct PLUS
(true/false) A credit check is not required for a direct plus federal loan.
FALSE (it is required)
What type of loan allows borrowers to combine multiple federal student loans into one loan with a FIXED interest rate?
direct consolidation
(true/false) Consolidating might take away benefits such as interest rate discounts, principal rebates, and eligibility for loan forgiveness or cancellation.
true
What student repayment plan is lower in the beginning and then increase every two years for up to ten years after graduation?
Graduated
What type of repayment loan offers a longer loan term – up to 25 years?
extended
What repayment plan has the Maximum monthly payment as 10% of discretionary income and is reevaluated every year, and term is extended to 20 years?
pay as you earn (PAYE)
What type of repayment plan has your Monthly payment as a % of your discretionary income and is reevaluated every year, and term is extended to 25 years?
Income-based repayment (IBR)
What type of repayment plan has your monthly payment is < 20% of discretionary income or what a fixed payment would be on a 12-year loan?
Loan term is extended to 25 years.
income-contingent repayment (ICR)
What is the best measure to use when tracking personal financial heath?
net worth
How do you calculate net worth?
Total assets - total liabilities = net worth
What is an asset?
everything you own
What are liabilities?
Everything you owe
What is used by banks when looking at mortgages?
Debt-to-income ratio
–> the lower, the better
Why is debt-to-income ratio used? How do you calculate it?
Shows how well you manage debt
DTI = Monthly debt/ monthly gross income
(gross/net) income is how much you really make
gross
(gross/net) income is how much you take home
net
What is the PA state tax?
3.07%
What is the local tax for annville?
1%
What does FICA fund?
social security and medicare
What do real estate taxes fund?
schools, libraries, public services
What is the sales tax in PA?
6%
What is the PA SUI tax?
PA unemployment tax
definition: flat rate local tax for adults (18 and over)
per capita tax
(true/false) All locations in the US charge a per capita tax.
false
What type of tax is used to reduce property taxes?
occupational tax
definition: money that is collected from paycheck and must be submitted to taxing authority on regular basis
payroll taxes
How often do you pay interest for a treasury bond?
6 months
(true/false) you pay regular interest with US savings bonds.
False
–> Sold for less than face value and get full value when cashing them in.
What type of bond provides funding for state and local government projects?
Municipal bonds
(true/false) municipal bond interest earned is exempt from federal tax and is usually exempt from state taxes.
true
Corporate bonds are issued by companies and usually pay (lower/higher) interest than the government bonds
higher interest
What bonds are sold to help pay down the national debt and other federal government projects?
US government bonds
–> interest earned is exempt from state and local income tax.
What bond score is indicative of the bond being the safest and most likely to pay interest?
AAA
What bond score is indicative of the bond being a high risk and may likely default?
C
What are monetary policies influencing the supply of money and interest rates?
–> The fiscal policies concerning taxes and government spending
macroeconomics
What predicts how the markets respond to policies and other influences such as Supply and demand of a product, Inflation, and Unemployment?
microeconomics
(true/false) The economics of healthcare DOES NOT follow normal economic principles
true
(true/false) Demand for Healthcare is regular.
FALSE (irregular)
(true/false) Price does not directly correlate to quality
true
definition: when a state mandates how many competitors can work in that area of healthcare
certificate of need state
What is the measure of economic sacrifice?
cost
definition: Costs that are more intangible, such as time and effort put into equipment maintenance for which no payment is received
implicit costs
definition: Tangible costs such as wages
explicit costs
What are the 2 categories of explicit costs?
Direct costs, indirect costs
definition: cost directly associated with the production of services and goods like supplies
direct costs
definition: cost indirectly associated with production of services or goods
Indirect costs (management salary and back office salaries)
What is the additional cost required to provide one more UOS?
–> Critical information for deciding to see one more patient or providing one more UOS is determined by a break even analysis
marginal cost (incremental cost)
How do you calculate average total cost?
Average total cost = total cost/total volume of unit of service
What is a technique used to find the specific volume at which a business either makes or loses money (in the red or in the black)?
break even analysis
What type of analysis is comparing the relative costs of two activities or programs with the same outcome?
cost effective analysis
definition: the money spent to produce or purchase a product or service that is sold
expense
definition: revenue from the sale of service or product provided by the company
operating revenue
What kind of assets are cash and can readily be converted to cash?
liquid assets
____ assets are assets that require a long conversion period.
fixed assets
definition: Debts payable to individuals who have provided services to the business on credit
accounts payable
definition: The value of debts that are held for payment in the future.
accrued expenses
definition: Loans, indicating the loan amounts and the interest due. Lines of credit, start up capital and mortgages are examples
notes payable
liabilities Long-term liabilities are liabilities not due or payable within _______. (mortgage and loans)
1 year
Short term liabilities are liabilities that are repairable within ____ (cleaners and landscaping)
1 year
What concept refers to the practice of recording financial transactions within an appropriate period of time?
accrual
What type of accounting is common in small practices where cash flow is critical or when volume is small?
cash accounting
(true/false) Each financial statement is interrelated, so together they are used to view the financial health, stability, and growth potential of an organization
true
(true/false) Statements can also be used to compare past to current performance
true
What months are common for fiscal years to begin/end?
january or july
definition: a statement of an organization’s financial condition
balance sheet
definition: The difference between total assets and liabilities that can be positive or negative. Also called net worth.
–> Represents the portion of the assets that belong to the owners
owner’s equity
How can net worth increase?
if the owner invests additional resources into the business or it can increase as a result of profitable operations
definition: a report on an organization’s financial performance over a specific period of time
income statement
What is a key part of any business plan?
income statement
What is the difference between revenues and expenses?
net income or loss from operations
What does an income statement compare?
Compares monies earned (revenues) to monies spent (expenses)
definition: financial statement shows how an organization’s cash position changes over time
cash flow statement
(true/false) Cash flow statements reports on future incoming or outgoing cash on account
FALSE (only actual cash)
Cash flow statements states the availability of cash to cover (short/long) term labilities.
short term
(true/false) Cash flow statements can be prepared for past, present, and future time periods (a pro forma statement)
true
What does a retained earnings statement provide?
additional details on how owner’s equity changed and information on how profits are used in a business
-> Profits are distributed to the owners or reinvested into the business
definition: a financial statement that estimates income and expenditures for a specified future time period
budget
How long does a operating budget cover?
1 year
How long does a strategic budget cover?
3-5 years
What is the general sequence for forming a budget?
- environmental scanning
- Identify goals
- gather data on estimated costs and revenues
- develop a proposed budget
definition: The difference between total revenue and total expenses
margin
definition: a positive margin
profit margin
definition: a negative margin
Loss margin
What uses information about past performance and current market trends to set future financial performance targets (3-5 years)?
Financial management planning (long-term financial plan)
Annual budget planning is a (short/long) term financial plan
short term
definition: Financial reports used to compare actual performance to budgeted performance
performance reporting
–> Deviations are called variance and can be (–) or (+)
What is the corrective action for variance as needed?
performance variance analysis
definition: Identifying the variances in what was budgeted versus what has actually happened is an important aspect in financial management
financial analysis
(true/false) Variances seen in a financial analysis is a red flag
true
What ratios help summarize key financial data in a format that is easy to understand and evaluate?
financial ratios
What ratios help with historical trends?
financial ratios
definition: Ratio that analyzes how efficient the organization is run and can look at number of days accounts receivable are outstanding (Average days it takes to collect cash from accounts receivable).
efficiency ratio
definition: Can be calculated for all operating units in a business (net income to total revenue)
profitability ratio
(true/false) KPIs do not vary by the type of business
FALSE (they can)
Some common KPI:
- Number of billed units
- Case Mix
- Average revenue per referral
- Average cost per referral
- Employee benefits as a % of salary
- Number of billable units per diagnosis
What is one of the most common KPIs?
productivity
–> the amount of a resource consumed in the production of an increment of output
How is revenue often generated in a clinic?
based on the number of minutes services were provided (UOS)
What is the goal of revenue management?
to maximize income from operations and investments
–> involves Setting prices (fees) and Identifying the payer(s) for each service or product
