Week 1 Terms: F.I. , Savings Rate, Net Worth, Inflation Flashcards

1
Q

What is the role of a financial mission statement in personal finance?

A

A financial mission statement gives you a purpose and momentum for your spending habits so you can avoid becoming a consumerist and ultimately live financially independent. Helps you know your why.

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2
Q

Fi Number and Calculation

A

The amount of money you need to be financially independent is

The calculation is 25 times the total amount of annual expenses

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3
Q

Behavioral Habits that lead to FI

A
  1. Know your why
  2. maximize your income
  3. minimize expenses
  4. wisely invest difference
    5.track your spending
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4
Q

FIRE acronym

A

Financial, Independence, Retire, Early

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5
Q

Savings Rate and calculations

A

savings rate is the percentage of income you’re saving

Calculation is ((Gross income - expenses)/ gross income) x 100

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6
Q

Financial Independence definition

A

Having enough income to pay for one’s living expenses and live the life you want without having to be employed or dependent on an support entity.

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7
Q

Consumers vs consumerist

A

Everyone is consumers, but not everyone is consumerist.

A consumer is one who buys goods and services, however, a consumerist is one who consistently buys the newest products and lives a rat lifestyle– living paycheck to paycheck.

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8
Q

Net worth meaning

A

assets (entities of value) minus liabilities (debts)

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9
Q

Examples of better debt

A

Mortgage (equity counters)
Student loans (personal investment)
Small business expenses

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10
Q

Examples of bad debt

A

credit card debt (interest rates are high)
auto loans (car depreciates over time)
personal loans

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11
Q

Equity and home equity meaning

A

ownership

Home equity= The amount of equity in a house fluctuates over time as more payments are made on the mortgage and market forces impact the property’s current value.

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12
Q

median income and net worth in the United States

A

Median income: 63,000
Median net worth: 97,000

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13
Q

compound interest

A

money that grows exponentially the longer you save (years) because the interest you earn in one-year gains interest the next.

Compound interest is amazing because in comparison to simple interest, where your money grows at a constant interest rate, you will make more money in that account over time.

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14
Q

Inflation definition, positives, and negatives.

A

Inflation is when it costs more to buy the same goods and services

Inflation can be good for a consumer’s prudence and economic growth when it is kept at its target rate. However, inflation is unpredictable and come sometimes grow at a large rate, which can be detrimental to an individual’s savings. [Bonus: sometimes, high inflation can bring COLAs– cost of living adjustments– that increase your paycheck and benefits to keep up with the rising costs of goods and services]

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15
Q

Consumer price index

A

An indicator of inflation, tracking it over time
measurement of average change in prices of a “basket of goods” over time.

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16
Q

Three kinds of inflation and their definitions

A

Cost Push Inflation– costs of businesses increase and thus businesses raise their prices
Demand Inflation– increase in demand of goods but the supply has decreased
Printing Money– government increases gov debt, or increases the loans that banks can hand out.

17
Q

Zero Based Budgeting Definition and Concepts

A

Naming where every dollar goes so you can know where money went yesterday, today, and will go tomorrow.

  • Debit/expenditure: money going out of your account (rent)
    -Credit/Deposit: money going into your account (paycheck)
18
Q

What are the three categories for zero based budgeting

A

Giving, Saving, Spending

19
Q

What is the target inflation rate

A

2.3%

20
Q

What is Know Your Why?

A

Know why you save, spend, invest, and give.

21
Q

Types of risk

A

High of risk, high reward= entrepreneurship
Medium risk, medium reward= stock investments
Small risk, small reward= savings/ savings account

22
Q

Spending Categories

A

Rent, entertainment, food

23
Q

Giving Categories

A

Religious
Make a Wish
Financial Aid Institutions

24
Q

Saving Categories

A

Retirement: 401k
Certificate of Deposit (CD)