Test 1 Flashcards
Income
-1st
-green
Gifts
-2nd
-yellow
taxes
-3rd
-red
Needs
-4th
Wants
-5th
Savings
-6th
Cash Flow
7th
Monthly Budget order
-Income
-Gifts
-taxes
-needs
-wants
-savings
-cash flow
What are we classified as (Basics)
-savers
-spenders
-all called to be stewards
What is our personal budget similar to (Basics)
-income statement
-tracks money going in and out
Assets (Basics)
-things we own
Liabilities (Basics)
-things we owe
Difference between assets and liabilities (Basics)
-Net worth
Many personal aspects to many financial topics? (Basics)
-range of healthy decisions to be made depending on the preference of the individual
Making a budget? (Basics)
-merely putting a plan together
Financial Freedom? (Basics)
-tracking actual income/spending
-comparing it to your budget
-revising your budget as needed
Fear? (basics)
-fear of diving deep into their personal finances
-scared to find unhealthy habits
-don’t want to face and change problems
Income source? (income)
-not limited to one source
-have as many as you can manage
what is a huge factor when it comes to income? (income)
-cost of living
-different places have higher/lower cost of living
what do savers do? (income)
-reduce expenses
-increase cash flow
What do spenders do? (income)
-increase income
-increase cash flow
what is gross income? (income)
-amount you make before taxes and other reductions
Timing of income? (income)
some jobs pay
-daily
-weekly
-bi-weekly
-monthly
Paid in arrears? (income)
-take longer to get first paycheck
-after you leave the company you will receive more than just last weeks pay
many companies require associates? (income)
-key time into a system
-job codes and assigning hours for each day the work
Immediate/deferred income (income)
-some is immediately recognized
-some isn’t recognized until a later date (retire)
Salary plus bonus? (income)
-many companies offer
-most the time salary is the more important factor
-many other benefits based on salary
More school? (income)
-more education/degrees leads to higher income in many industries
expenses be separated into? (expenses)
-wants
-needs
wants (expenses)
-really only be purchased with excess cash that hasn’t been taxed, given, saved, or spent on needs
Forecast cost? (expenses)
-we can forecast cost
-infinite number of circumstance that can change cost
-almost all changes increase price
When are most expenses paid? (expenses)
-paid after tax
How do you save on expenses? (expenses)
-Credit cards and reward points
-redeem instead of paying cash
Inflation effect on salary? (expenses)
-almost always increases expenses more than your salary is increased
fees that need to be factored in? (expenses)
-many different hidden cost
What should be factored into the price of something? (expenses)
-The cost to maintain it (pet)
Dave Ramseys envelope system (expenses)
-establishes discipline for monthly spending
-fill envelope with a certain amount of cash for a certain expense for that month
Credit card? (expenses)
-put as many expenses as you can on it to rack up points
-essentially reduces price
-only do it if financially disciplined
are peoples spending and making connected? (expenses)
-not always connected
-many peoples expenses outweigh their income (debt)
Higher income (taxes)
-higher the income the more taxes you’ll pay
-exceptions like working in military/war zone
Tax brackets? (taxes)
-many different ones that calculate how much federal income tax you owe
-based on income ranging from 10%-37%
Taxes deducted from from most employees? (taxes)
-federal income tax
-FICA (social security + medicare)
-state income tax (41 states)
When to file taxes? (taxes)
-required to file taxes by April 15 of each year
-moved to next work day if date falls on weekend/holiday
File your taxes easy? (taxes)
-document your income and expenses throughout the year (organized)
What to do if you get audited by the IRS? (taxes)
-get help from an accountant
what should be considered when making any purchase/investment? (taxes)
-tax consequences should be considered
“pay cash” (assets)
-not just paper money anymore
-means you can afford it regardless of payment method
Largest assets people own? (assets)
-house
-vehicle
assets value can? (assets)
Appreciate- value goes up
depreciate- value goes down
what can you do with most assets? (assets)
-sold
-traded
-given
-seized
Positive net worth (assets)
-assets are higher than your liabilities
How can you improve your financial situation? (assets)
-if an asset has accompanying liability that is greater than the value getting rid of it can improve your financial situation
Good idea in retirement? (assets)
-have a diverse portfolio of assets
What does high enough assets do to spending? (assets)
-makes spending almost insignificant
What does high income and reasonable expenses do to assets? (assets)
-grow the assets
Value of asset after useful life? (assets)
-still have some sort of value
all amounts you owe? (liabilities)
-keep detailed records
-plan to fully payback as soon as you can
Good strategy for multiple debts? (liabilities)
-pay off highest interest rate first
-pay whichever one you can completely pay off first
Before buying something? (liabilities)
-think of the liability that might accompany the asset
while you owe the bank for house/car? (liabilities)
-bank is technically the owner of the asset
-held as collateral for your loan
Financial Freedom? (liabilities)
-having zero liabilities
Insurance companies (insurance)
-betting that your premiums will be greater than the claims they’ll pay
-calculate scoring your risk through underwriting process
types of insurance (insurance)
-health, dental, vision, home owners, automobile, boat, life, and many more
Insurance policies? (insurance)
-built in deductible (your share of the bill)
-company pays the rest
Insurance policy adjusting? (insurance)
-frequently adjusted up/down based on the risk of the one being insured
Savers (insurance)
-find it harder to substantiate certain types of insurance
-extended warranties
Insurance coverage? (insurance)
-benefit of most employers
-you can seek additional insurance
utilize credit (credit)
-The earlier the better
-open a credit card as soon as possible
Credit history (credit)
-Don’t cancel first card
-keep credit history long
-upgrade first card to a better one
Most important factor in calculating your credit score? (credit)
-on time payments
-missing can drastically hurt it
Credit utilization credit score (credit)
-very important in calculating credit score
-keep utilization as low as you can (under 30%)
New lines of credit (credit)
-opening new lines can lower credit score
-paying down credit/increasing lines will increase credit score
Is credit needed? (credit)
-not a necessity if you have cash
-only used to borrow money
Credit cards (credit)
-not all cards are equal
-better ones require a higher credit score and have annual fees
Credit score (credit)
-the higher your credit score the better interest rates your eligible for
retirement time? (retirement)
-not in control
-can happen before, after, or not at all
Expenses (retirement)
-should be much lower
-expenses paid off
-not putting money away for retirement
when do most people retire and why? (retirement)
-most people wait until 65 so they are covered by medicare
is a million enough to retire? (retirement)
-not enough to retire comfortably
-inflation makes it less and less
-expenses grow more and more
when do you make the most money in your life? (retirement)
-right before you retire
-money entices people to keep working a bit longer
Roth IRA (IRA)
-put after tax dollars
-grow tax free as long as you take it out after 59 1/2
Great aspect of Roth IRA (IRA)
-all contributions can be withdrawn tax and penalty free
Contribution amount (IRA)
-contribute up to 7,000 per year if your under 50
-contribute up to 8000 if 50 or older
Qualifications for Roth IRA (IRA)
-make less than 153,000 per year
Traditional IRA (IRA)
-open using after tax dollars
-earnings will be taxed based on the length of your investment
young adults (housing)
-for many buying a house won’t be an option for a while
-save up for down payment
-wait for lower interest rates
apartment vs home (housing)
-renting an apartment can sometimes be more beneficial
-homes don’t always appreciate
-liability of owning a home can be significant
House payment components (housing)
-principal
-interest
-escrow
escrow (housing)
-contains property taxes and homeowners insurance payments
-easier to break up in more management payments
Interest rate on home (housing)
-almost as important of a factor as the purchase price
when should you buy a house? (house)
-planning on living at the same location for 5-7 years
-have a plan to rent it out
what percent selling fee do realtors charge? (house)
-6%
Mortgages (housing)
-most are 30 year fixed rates
hidden cost to owning a home? (housing)
-termite bonds, pest control, pine straw, supplies, paint…
what happens after living in a house for 5 years? (housing)
-when you sell it, up to 250,000 in profit can be received tax free if your single
-doubled if married
buying a car (vehicles)
-negotiating the price can save you thousands
car insurance (vehicles)
-before buying a car you should consider the price of car insurance
car depreciation (vehicle)
-most depreciate significantly after first few years
-driving a car for a long time helps level out the cost of ownership
maintenance of car (vehicles)
-when buying a car considered what type of gas it takes
-tires it needs
-oil changes
car loans (vehicles)
-most car loans offered between 3-8 years
-interest rates are often more favorable than mortgage rates
electric cars (vehicles)
-true cost is more than gas cars
-gas is cheap enough where there isn’t a point in switching
trade in value (vehicles)
-your car likely has a significant trade in value even if its beat up with high mileage
leasing a car (vehicles)
-if you enjoy a new car it makes more financial sense
No car? (vehicles)
-sometimes makes more since not to own a car
-city with good public transportation/ride sharing
401K company match (401k)
-always contribute the percentage you need in order to get the company to match
increase 401k (401k)
-great way to increase 401K savings is to increase % in tandem with getting a raise
benefits of contributing to 401k (401k)
-deferring paying taxes on that income until you withdraw it
-take out a loan and pay yourself interest
contribution amount (401k)
-an individual can contribute up to 23,000 each year
-this number can go up each year
-amount is in addition to the company match
not-for-profit (401k)
-offers a 403b
-effectively the same thing
pension
-nearly extinct company benefits
-great way to get people to stay with the same company until retirement
how a pension works? (pension)
-retiree will get a pre determined amount of money upon retirement
-taken annuity payments or lump sum
-get an amount dependent how well the invested dollars have performed
Accounting (pension)
-extremely costly/difficult
-why many companies stopped offering it
Three primary places to give (giving)
-church
-charity
-people
giving to a church or charity? (giving)
-can trigger a tax benefit if you itemize
what’s the amount you receive per giver? (giving)
-18,000 per giver completely tax free each ear
first step to reach financial independence (goals)
-setting financial goals
what’s important? (goals)
-important to track goals to ensure you decisions are helping meet them
type of goals? (goals)
-good to have quantifiable goals rather then generic ones
