Wealth Whiz Financial Literacy Flashcards
Wealth Whiz flashcards are designed to educate individuals onn key financial concepts and strategies in a simple, engaging way.. empowering them to make informed decisions about budgeting, saving, investing and bbuidkign wealth for long term financial success..
What is an Asset?
An Asset is something that is fully paid for and can be sold for cash or used as collateral
such as your car, or home
What is a Liability?
Liability is the opposite of an asset. Assets are things that add value. Liabilities are any debts or money you owe others
You always want more assets than liabiities
What is Income?
Income is the money an individual or business receives in exchange for providing goods, services, or investments. It can come from various sources
What are three types of income?
Earned Income
Passive Income
Investment Income
What is Passive Income?
Passive Income - Money earned with little to no effort,
such as rental income, dividends, or royalties
What is earned income?
Earned Income - Wages, salaries, commissions, or
business profits.
What is investment income?
Investment Income - Profits from stocks, bonds, or other investments.
Gross pay vs Net pay
Gross pay refers to the total amount of money you earn before any deductions, such as taxes, insurance, or retirement contributions, are taken out. Net pay is the amount you receive in your paycheck after all deductions have been subtracted.
What is a budget? How to create a budget?
Budgeting is an essential aspect of managing your finances effectively. It involves creating a plan for how you will allocate your income towards expenses, savings, and investments. By setting a budget, you can track your spending, identify areas where you can save money, and work towards your financial goals.
Why is it important to save money ?
- Saving money is important because it helps in the event of emergencies such car repairs, sudden job loss, or an unforseen event
- Saving also helps prepare you for retirement
- Helps you prepare for future expenses
- Saving also creates peace of mind, knowing you are prepared for the unexpected
Helpful Hint!!
The earlier you start saving and investing, the more time your investments have to generate earnings, which in turn earn more returns.
What is emergency savings?
Having emergency savings is crucial for financial stability and peace of mind It is recommended to have enough savings to cover at least three to six months’ worth of living expenses in case of unexpected circumstances such as job loss, medical emergencies, or car repairs.
To start building your emergency fund, try setting aside a small portion of your income each month into a separate savings account.
Helpful Hint !!
Always Pay Yourself First !!!
Bank or Credit Union (How to choose)
When it comes to choosing between banks and credit unions, there are a few key factors to consider.
Banks are typically larger institutions that offer a wide range of services, including checking accounts, savings accounts, loans, and investment options. They often have a larger network of ATMs and branches, making them convenient for those who prefer in-person banking.
On the other hand, credit unions are member-owned, not-for-profit organizations that often offer better interest rates on savings accounts and loans. They may have more personalized customer service and a community-focused approach to their operations.
Consider your financial needs and preferences when deciding between a bank and a credit union. If you value convenience and a wide range of services, a bank may be the right choice for you. If you prioritize personalized service and competitive rates, a credit union could be the better option.
What is a checking account?
A checking account is a type of bank account that allows you to deposit and withdraw money for everyday transactions. It typically comes with a debit card and checks that you can use to make payments or access cash.
What is a routing number and where can you find it ?
A routing number is a nine-digit number used by banks to identify the financial institution where the account was opened. It is often required for tasks like setting up direct deposit, making electronic payments, or wiring money. You can usually find your routing number on the bottom left corner of your checks.
What is an overdraft fee?
An overdraft fee is a charge imposed when an account holder spends more money than is available in their checking account.
How do banks make money?
Banks make money by lending, investing, and charging fees for their services.
Banks make money by offering loans to individuals and businesses and charging interest on the borrowed amount. Banks also invest into stocks, bonds to earn money through dividends, and capital gains. Fees charged for atm fees, overdraft fees also contribute to banks income.
What is a taxpayer?
Three common types of taxes a taxpayer has to pay
A tax payer is any person or organization required by law to pay a tax to a governmental authority.
The types of taxes you pay are
Income Tax- A tax on earned and unearned income
Property Tax- A tax on property, such as land, buildings (including homes), and automobiles.
Sales Tax-A tax on purchased goods and services.
What is cost of living ?
You may have heard your parents say, “Money dont grow on trees”
This means it costs to live and maintain a household and due to inflation the price to live has increased
Cost of living means the cost of food, housing, transportation, clothing, and everyday expenses
What is inflation?
a general increase in prices
of goods and services over a period of time, resulting in a decrease in the value of money
What is a credit score?
Which one is considered a good credit score?
A.517
B.760
C.610
D.475
Answer B.760
Your credit score is a 3 digit number from 300-850 that is calculated using information from your credit report. Paying your bills on time is key to having a good credit score. A good credit score is important when you’re trying to buy a car, house, rent an apartment, get a loan, apply for credit cards, car insurance , and employment.
How often can you get a free credit report ?
Yearly
You can get a FREE copy of your credit report every year from each of the major credit bureaus. Monitoring your credit is a good financial health habit to protect yourself from identity theft, fraud, and inaccuracies on your report.
You can access all 3 of your credit reports from
Annualcreditreport.com
Can a low credit score affect your future ?
Yes or No
YES
Having a low credit score can prevent you from getting an apartment, cars, credit cards, loans, etc. It even affects your rates on car insurance, employment,
Take care of your credit!!
How do you keep your credit score high
A. Paying your bills when you feel like it
B. Not paying at all
C. Paying your bills early, or on the due date, and keeping balances low
C
Paying your bills early or on time will show banks, and lenders that you are responsible with your finances. One late payment can decrease your credit score drastically. Get in the habit of knowing when your bills are due, and paying them on time.
What are the three major credit bureaus ?
- Experian
- Equifax
- Transunion
How long does it take an account to go to collections
Answer… D
A 30 day late payment can affect your credit score negatively, after 90 days the account can be sent to collections
Why is your credit score important?
Your credit score heavily influences your approval for bank loans, credit cards, mortgages, employment, business funding, insurance premiums, and apts
What is a credit freeze?
A credit freeze, also known as a security freeze, is a tool that can help prevent unauthorized access to your credit report and protect you from identity theft. When you place a credit freeze on your account, potential creditors will not be able to access your credit report unless you temporarily lift the freeze.
What is identity theft?
Identity Theft is when someone steals your personal information to commit fraud
Always keep your credit reports locked by adding a credit freeze
Credit Cards vs. Debit Cards
Credit cards give you access to a line of credit issued by a bank, help you build credit, interest fees may vary, not mishandling can lead to debt, can build rewards, travel points and discounts… while debit cards deduct money directly from your bank account
What is a debit card?
A payment card where the money is drawn directly from your bank account when making purchases
What is a credit card?
Credit cards can be used to build credit , it is NOT the same as a debit card. Credit cards are issued from bank. There is a credit limit available for you to use for purchases. The amount you use has to be paid back in full each month or you can make the minimum payment ON TIME.
What is a credit limit ?
A credit limit is the maximum amount of money that a financial institution such as a bank or credit card company is willing to lend to an individual or business. This limit is determined based on various factors, including the individual’s credit history, income, and overall financial health.
What is an Installment loan?
An installment loan is a type of loan that allows you to borrow a fixed amount of money upfront and repay it through regular installments over a specified period of time. Example : your monthly car payment
What is revolving credit?
Revolving credit is a type of credit that allows you to borrow funds up to a certain limit, repay the borrowed amount, and then borrow again. It’s a flexible form of credit that doesn’t have a fixed number of payments like installment loans.
Example: Credit cards
Fun Fact
You will be charged interest if you dont pay your credit card balances in full each month. Try your best to pay them in full, but if you cant make sure you pay the minimum payment
ON TIME!
FYI
YOU can start building your credit with a secured credit card
Secured credit cards are a great option for individuals looking to build or rebuild
their credit. These cards require a security deposit that typically serves as your
credit limit, making them a low-risk option for both the cardholder and the credit
card issuer. By using a secured credit card responsibly, you can demonstrate your
creditworthiness to lenders, which can help you qualify for better financial
products in the future. Remember to make on-time payments and keep your
credit utilization low to maximize the benefits of using a secured credit card to build your credit.
What is interest?
Interest is a fee paid for borrowing money or the reward earned for saving money:
Borrowing
When you borrow money, like for a car or house, you’ll need to pay back the original amount plus interest. Interest is the additional amount you pay, and it’s calculated as a percentage of the amount you borrowed, called the principal.
Saving
When you save money in a savings account or certificate of deposit, you can earn interest. The bank will pay you a percentage of your savings over time
What are scams and how to avoid them?
Scams can come in many different forms, from phishing emails to fraudulent phone calls. It’s essential to stay vigilant and protect yourself from falling victim to these schemes. Remember to never give out personal information to unknown sources and always verify the legitimacy of any requests for money or sensitive data. By staying informed and cautious, you can safeguard yourself against scams and keep your finances and personal information secure.
Rememeber if it sounds to good to be true then it probably is !
Renting vs Home Ownership
There are several factors to consider before making a decision. Renting offers flexibility and less responsibility in terms of maintenance and repairs, while homeownership provides a sense of stability and the opportunity to build equity.
Renting a property allows for more mobility, as tenants can easily move to a new location without the burden of selling a home. It also provides predictability in terms of monthly expenses, as rental costs are typically fixed for the duration of the lease.On the other hand, owning a home offers the freedom to customize and personalize the living space to your liking. Homeownership also allows for the accumulation of wealth through property appreciation and equity buildup over time.
Ultimately, the decision between renting and owning a home depends on individual circumstances, financial goals, and personal preferences. It is essential to weigh the pros and cons of each option carefully before making a choice that aligns with your long-term objectives.
Paying Rent
Renting is the act of paying for the temporary use of something owned by someone else. Such as an apartment, condo, or house. Rent is usually due on the 1st of the month
Priortize your finances, and pay your bills on time
If you fail to pay your rent on time, you can face eviction, and can ruin your credit
What is eviction?
An eviction is the legal process by which a landlord removes a tenant from a rental property, typically due to lease agreement violations, such as non-payment of rent, property damage, or illegal activity.
What is a mortgage?
A mortgage is a loan used to purchase real estate, such as a house , and/or land, where the property acts as collateral for the loan.
What is foreclosure?
Foreclosure is a legal process in which a lender takes possession of a property from a borrower who has failed to keep up with their mortgage payments.
Homeownership Basics
Owning a home is a significant milestone and a goal for many individuals. It provides a sense of stability, security, and pride.
It’s essential to create a budget that outlines your monthly housing costs, such as mortgage payments, property taxes, insurance, and maintenance expenses.
Consider factors such as location, size, amenities, and resale value when evaluating potential properties. It’s also important to conduct a thorough inspection to ensure the home is in good condition and free of any major issues.
Remember that homeownership comes with responsibilities, such as maintaining the property, paying property taxes, and keeping up with mortgage payments. With proper planning and diligence, homeownership can be a rewarding and fulfilling experience.
What is home maintenance?
Home maintenance costs are an essential aspect of homeownership that should not be overlooked. Regular upkeep of your home can help prevent larger, more expensive issues down the line. From routine tasks like cutting the lawn, cleaning gutters and changing air filters to more significant projects like roof repairs or appliance replacements, budgeting for home maintenance costs is crucial.
What are HOA fees?
Homeowners Association (HOA) fees are a common aspect of living in a community governed by an HOA. These fees are typically used to maintain shared amenities such as pools, parks, and common areas, as well as to cover the cost of community services like trash removal and landscaping. Paying HOA fees helps ensure that the neighborhood remains clean, attractive, and well-maintained for all residents to enjoy. It’s important to budget for these fees and understand what they cover to make the most of your community living experience. Remember, HOA fees are an investment in the upkeep and quality of life in your neighborhood.
If you don’t pay your rent on time, what can you face?
A. Foreclosure
B. Bankruptcy
C. Eviction
D. Just live rent free
Answer c
Eviction
What is bankruptcy?
Bankruptcy is a legal process that individuals or businesses may go through when they are unable to repay their debts. It allows them to either eliminate their debts entirely or develop a plan to repay them over time. Bankruptcy offers a fresh start to those overwhelmed by financial difficulties, providing a way to reorganize or eliminate debt and move forward with a more sustainable financial future. It is important to note that bankruptcy laws vary by country, and seeking advice from a legal professional is recommended when considering this option.
Purchasing a vehicle
When purchasing a vehicle, whether new or used, DO NOT allow the dealers to run your credit to find you a loan. They will run your credit through multiple companies to get you approved. You end up with a decreased credit score, and multiple hard inquiries.
Instead, go to your bank/credit union (make sure your credit is up to par) apply for an auto loan, with a reasonable interest rate, secure the loan, and purchase the vehicle. It is less hassle, and you will have 1 inquiry on your credit report
It also gives you more buying power to be able to purchase the vehicle you want.
Always do your research on the vehicle you want, run a car fax report, bring a mechanic if you can, and ask questions. (No question is a dumb question)
oh! one more thing :
Never come off as desparate, salesman can see it a mile away
You are doing great!! Keep going !!!
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3 types of insurance you should have?
Life Insurance
Health Insurance
Auto Insurance
Insurance Definitions
Deductible-the amount the insured has to pay on a claim before the insurance company will pay anything
Premiums-The cost for insurance coverage for the term of the insurance policy
What is life insurance and why do you need it ?
Life insurance is there to protect your loved ones financially if you pass away, or are unable to work due to an illness, or injury. A lump sum of money is given to your beneficiaries to help pay for homes, cars, college education, and to cover funeral expenses. One of the most important reasons to have life insurance is to leave an inheritance to your loved ones. You can also use your life insurance to borrow from to start a business, to build your retirement, mortgage protection, and security for your business.
Types of Life Insurance Term Life Insurance
Term life insurance is a temporary insurance with coverage options ranging from 10 to 30 years, term life insurance provides a sense of security during crucial stages of life. While the premiums for term life insurance are typically more affordable compared to other types of insurance, it’s important to note that this policy does not accumulate cash value over time. Despite this limitation, term life insurance remains a valuable tool for safeguarding your family’s financial future.
Whole Life Insurance
Whole life insurance is a type of permanent life insurance that provides coverage for your entire life, as long as premiums are paid. Unlike term life insurance, which provides coverage for a specific term, whole life insurance offers lifelong protection and also includes a cash value component that grows over time.
What is health insurance and why do you need it?
Health insurance is a type of coverage that helps individuals pay for medical expenses and services. It is designed to protect you from high and unexpected healthcare costs that may arise due to illness, injury, or other medical conditions. Having health insurance is essential as it ensures that you have access to quality healthcare without the financial burden that can come with it.
What is auto insurance and why do you need it?
Auto insurance is a financial protection that helps cover the costs of damages or injuries resulting from a car accident. It is a crucial safeguard for drivers as it can provide coverage for repairs to your vehicle, medical expenses, and liability protection in case you are at fault in an accident. Having auto insurance is a legal requirement in many places, but it also offers peace of mind knowing that you are financially protected in case of unexpected events on the road.
What is an Entrepreneur?
An entrepreneur is an individual who creates and /or invests in one or more businesses
The process of setting up a business is known as entrepreneurship
What is an Employee?
A W2 employee is an individual who is employed by an employer. An employee receives a W-2 form at the end of the year, which outlines their earnings and tax withholdings. W2 employees are typically hired to work a set schedule, receive benefits, and have taxes withheld from their paychecks by their employer.
What is an Independent Contractor?
One who works as an independent contractor is essentially self-
employed. As an independent contractor, individuals have the freedom
to choose their projects, set their own schedules, and work with
multiple clients. This arrangement allows for greater flexibility and
autonomy in managing one’s work life. However, it also means taking on
the responsibilities typically handled by an employer, such as managing
taxes, securing healthcare coverage, and planning for retirement. Being
a self-employed independent contractor can be rewarding, but it also
requires careful planning and organization to maintain success in todays work environment.
Types of Businesses entities
What is an L.L.C
An L.L.C. ( Limited Liability Corporation) provides personal liability protection for its owners, known as members, meaning their personal assets are typically protected in case of legal action against the company. This structure also offers flexibility in management and taxation, making it a popular choice for many small businesses and startups.
What is an S corporation?
(S-Corp) is a type of business entity that offers a unique structure for small businesses. One of the key benefits of an S-Corp is that it allows for pass-through taxation, meaning that the business itself is not taxed on its profits. Instead, the profits are passed through to the shareholders, who report them on their individual tax returns. This can result in potential tax savings for the shareholders.
What is a Sole Proprietor?
A sole proprietor is an individual who owns and operates their
business alone. This means that they are personally responsible
for all aspects of the business, including its finances,
operations, and decision-making. As a sole proprietor, you have
complete control over your business and keep all the profits.
However, you are also personally liable for any debts or legal
issues that may arise. It’s important for sole proprietors to
keep detailed records of their business activities and finances
to ensure their success and compliance with regulations.
Remember, as a sole proprietor, you are not alone - there are
resources available to help you navigate the challenges and
opportunities of running your own business.
What is an C- Corp
C-Corp is a type of business structure where the company is considered a separate
legal entity from its owners. This means that the owners, also known as shareholders,
have limited liability for the company’s debts and obligations. C-Corps are required to
follow certain formalities such as holding regular meetings, keeping accurate financial
records, and filing annual reports. This structure allows for the company to raise
capital by selling shares of stock and offers potential tax benefits. Overall, forming a C-
Corp can provide a strong foundation for growth and expansion for businesses of all
sizes.
What is Retirement Planning ?
Retirement planning is an essential part of securing your financial
future. It involves setting goals, creating a budget, and investing
wisely to ensure a comfortable retirement. By starting early and
regularly reviewing your plan, you can build a nest egg that will
support you during your golden years. Remember, it’s never too early
or too late to start planning for retirement. Start today and enjoy a worry-free tomorrow!
Examples of Retirement Accounts
401k
IRA
What is a 401K
401 K plans are retirement savings accounts sponsored by employers
that allow employees to save and invest a portion of their paycheck
before taxes are taken out. These plans are a popular way for
individuals to save for retirement and can provide a valuable source
of income once they reach their golden years. By contributing to a 401
K plan, individuals can take advantage of potential employer matching
contributions and tax-deferred growth on their investments. It’s
important to regularly review and adjust your 401 K investments to
ensure you are on track to meet your retirement goals.
What is an I.R.A
An Individual Retirement Account (IRA) is a type of investment account
that offers tax advantages for retirement savings in the United States.
There are two main types of IRAs - Traditional IRAs and Roth IRAs.
Traditional IRAs allow you to make contributions with money that you
may be able to deduct on your tax return, while withdrawals in
retirement are taxed as income. On the other hand, Roth IRAs are
funded with after-tax dollars, meaning contributions are not tax-
deductible, but qualified withdrawals in retirement are tax-free. IRAs
are a popular way for individuals to save and invest for retirement,
providing a valuable tool for building a financially secure future
What is an IUL
IUL stands for Indexed Universal Life insurance. It is a type of permanent
life insurance that offers a death benefit along with a cash value
component that is tied to the performance of a stock market index, such
as the S&P 500. This means that the cash value has the potential to
grow based on the market index’s performance, allowing policyholders
to benefit from market gains while also having protection from market
downturns. Indexed Universal Life insurance policies typically offer
flexibility in premium payments and the potential for cash value
accumulation over time, making them a popular choice for individuals
looking for both insurance coverage and investment opportunities in one product .
What is wealth?
How to acquire wealth?
Wealth, defined as financial abundance and assets, can take various forms beyond just money in a bank account. It encompasses a wide range of resources such as investments, properties, valuable possessions, and more. However, true wealth is not solely measured by the amount of money one possesses but also by the quality of life it affords. It can provide stability, security, and opportunities for growth and fulfillment. Understanding the value of wealth goes beyond the material possessions and extends to the experiences, relationships, and impact one can create with the resources at their disposal. The fastest way to acquire wealth is to invest into income producing assets, such as real estate, stock, businesses, ecetera. Creating multiple passive incomes will significantly contribute to buildiing wealth.
Investing
To invest means to spend money on something in hopes of a future benefit or return
What are Stock?
A stock represents ownership in a company. When you purchase a
stock, you are essentially buying a small piece of that company. Stocks
are traded on stock exchanges, where investors can buy and sell
shares of publicly listed companies. Investing in stocks can provide
the opportunity for growth and profit as the value of the stock may
increase over time. It is important to research and understand the
companies you are investing in before buying their stock to make
What is the Stock Market?
The stock market is a platform where buying and selling shares of publicly traded
companies takes place. It is a vital component of the global economy, enabling
companies to raise capital and investors to own a portion of these companies. The
stock market can be a place of opportunity for investors looking to grow their wealth
through investing in stocks. It is influenced by various factors such as economic
indicators, company performance, geopolitical events, and investor sentiment.
Understanding how the stock market works and conducting thorough research can
help investors make informed decisions and navigate the complexities of this
financial landscape.
What are Mutual Funds ?
Mutual funds are investment vehicles that pool money from multiple investors to buy a
diversified portfolio of stocks, bonds, or other securities. They are managed by professional
fund managers who make investment decisions on behalf of the investors. Mutual funds
offer a convenient way for individuals to invest in the financial markets without needing to
select individual securities themselves. They provide diversification, liquidity, and
professional management, making them a popular choice for both novice and experienced
investors. With a wide range of mutual funds available, investors can choose funds that align
with their financial goals, risk tolerance, and investment preferences. Overall, mutual funds
are a valuable tool for building wealth and achieving long-term financial success.
What are Bonds?
Bonds, in the financial world, represent a form of debt investment
where an investor lends money to an entity - typically a corporation or
government - for a fixed period at a predetermined interest rate.
These fixed-income securities are crucial in the world of finance as
they provide a source of funding for various projects and initiatives.
Bonds are known for their relative stability compared to stocks,
making them an attractive option for investors looking to diversify
their portfolios.
What is a CD (Certificate of Deposit)
A Certificate of Deposit, commonly known as a CD, is a type of financial product offered
by banks and credit unions. When you open a CD, you are essentially agreeing to deposit a
certain amount of money for a specific period of time, known as the term. In return, the
financial institution typically offers a higher interest rate compared to a regular savings
account. CDs are considered to be low-risk investments as they are insured by the FDIC
or NCUA, depending on whether the account is held at a bank or credit union. It’s
important to note that withdrawing funds from a CD before the term is up may result in
penalties, so it’s crucial to carefully consider your financial goals and needs before investing in a CD.
