Personal finance
A bank provides overdraft protection charges 10% for each $100 (or portion) borrowed when an overdraft occurs. What amount of interest would the customer pay for an overdraft of $260?
$30 3 x $100 x .10 Number of $100 increments x $100 x interest rate
Saving techniques
1) write a check each payday 2) payroll deduction 3) saving coins or spending less
Taxable income must be less than 100k, income can only consists of salary/wages/tips no more than $1500 of taxable interest, single or married filing joint return and no dependents
1040EZ form
For job related expenses to be deductible what percent of adjusted gross income they must exceed?
2%
What would be the yearly earnings for a person with $3,600 in savings at an annual interest rate of 4.5%?
3,600 x 0.045 = 162
Rule of thumb when saving for an emergency fund
3-6 months of living expenses
Amount of money or value of property that can be gifted each year without being subjected to federal gift taxes
$14,000 per person
If Mary has cash inflow for the year of $120,000 with cash flows of $135,000 her cash flow statement would show a
$15,000 deficit
Monthly payment
(Interest + principal) / number of months
Janie has a joint account with her mother with a balance of 575,000. Based on 250,000 of federal deposit insurance corporation coverage, what amount of Janie's savings would not be covered by deposit insurance?
37,500= 287,500-250,000 First: 0.50 x 575,000 = 287,500 ^
Fred has good credit and can borrow at 5%. Bob has poor credit and can borrow at 11% what is the amount of risk premium bob will pay?
6%
What would be the annual percentage yield for a savings account that earned $31 in interest in $500 over the past 365 days?
6.2% = 100 x (31/500)
Copies of tax returns should be retained for at least:
7 years
Another name used for calculating present value?
Discounting
A cause of inflation is a decrease in supply of products when there is
Increased spending-increased demand
A rise in the general level of prices:
Inflation
Types of risk
Inflation, interest rate, income, personal risk, liquidity risk
Unit price
Price/measure
Tax on wages to fund old age, survivor, and disability income benefits by the federal government
Social security
Adult life cycle
Stages in the family situation and financial needs of an adult
Net worth
The amount you would have if you sold the assets and paid off the liabilities (Assets-liabilities)
"Hidden" inflation exists when
The cost of necessities rise at a higher rate than nonessential items
A credit union is owned by
The members
Economics
The study of how wealth is created and distributed
What is rule of 72 used for?
To find out how fast prices/savings will double
Debt to Equity Ratio
Total liabilities / net worth
Legal agreement that provides for the management and control of assets by one party for the benefit of another
Trust
Low risk savings program guaranteed by the federal government
US savings bonds
A line of credit in which loans are made in continuous basis and the borrower is billed periodically for at least partial payment
Open ended credit
Trade off is also known as
Opportunity cost
Occurs when you do not actively participate in the business
Passive income
Taxpayers pay income taxes through
Payroll withholding & estimated tax payments
Where should easy-to-replace documents such as resumes and list of financial goals be stored?
Personal computer system & home filing system
Financial services affected by
Rising consumer prices, interest rate, economic factors
Tax rate that is used to calculate the tax on the last (or next) dollar of taxable income is
A marginal tax rate
Tax credit
Amount subtracted directly from taxes owed
Estate taxes
Calculated on the value of a persons property at death
A savings plan that requires a certain amount of money to be left for a stated time period to earn a specific rate of return and imposes penalty for early withdrawal is called
Certificate of deposit
One time loans that the borrower pays back in a specified period of time and in payments of equal amounts
Closed end credit
Types of credit
Closed end credit & open end credit
Financial institution that offers a full range of financial services to individuals, businesses and gov agencies
Commercial bank
The use of credit for personal needs
Consumer credit
What to do if your identity is stolen?
Contact credit bureaus Contact creditors File police report
An arrangement to receive cash goods or services Now and pay them in the future
Credit
An agency that collects information on how promptly people and businesses pay their bills
Credit bureaus
User owned, non profit, cooperative financial institution organized for the benefit of its members
Credit union
High cost financial services don't typically include
Credit unions and mutual savings banks
When the level of exports of U.S made products is lower than imported goods, this will typically cause the domestic money supply to:
Decrease
Reduces taxable income, thereby reducing tax liability
Deduction
The amount which actual spending exceeds planned spending
Deficit
Tax avoidance strategy
Delay receipt of income & accelerate deductions to save taxes
Interest rates are affected by?
Demand for goods and services & supply of goods and services
How to use rule of 72?
Divide 72 by the annual inflation for interest rate
Income tax is paid
During the year through withholding from paychecks
Components of income
Earned, investment and passive income
20% rule
Experts say you should spend no more than 20% or your net (after tax) income on consumer credit payments
Coverage prevents a los of money due to the failure of insured institution
FDIC
Total dollar amount paid to use credit
Finance charge
Requires all taxpayers to pay same percentage?
Flat tax
The amount to which current savings will increase based on a certain interest rate and a certain time period is called:
Future value
People who claim large unusual deductions increase there odds of ?
Getting audited
Economic factors affecting financial decisions?
Global influences, inflation, and interest rates
Inflation has negative impact on?
Lenders
Debt ratio
Liabilities divide by net worth
The dollar amount which may or may not be borrowed
Line of credit
Cash and items of clause that can easily be converted to cash
Liquid assets
Liquidity ratio
Liquid assets / monthly expenses
Current ratio
Liquid assets divided by current liabilities
Medical bills, credit card balances & home equity are all examples of ?
Long-term liabilities
Regular savings account usually has
Low or no min balance required
When cash inflows (receipts) are greater than cash outflows (expenditures)
Cash surplus
Personal factors that affect financial decisions
Age, income, household size, and personal beliefs
Liabilities
Amount owed to others
Savings ratio
Amount saved each month divided by gross income
Stop payment order
Avoid payment of specific check
Financial statement that reports what an individual or a family owns and owes
Balance sheet
Back and trust received an interest rate of 5%. The current inflation rate is 8%. Are they keeping up with inflation rate?
Banks and trust are losing 3% of buying power
What you have left after you have paid for housing, food, and other necessities
Discretionary income
State income tax returns are required to be filed when
Federal return is due
Decreased money supply will cause ___________ interest rates?
Higher
Types of deductible interest expenses
Home mortgage, investment , and home equity loan interest
Where should difficult to replace documents be kept?
Safe deposit box
Financial institution traditionally specialized in savings accounts and mortgage loans
Savings and loan association
Medical costs , taxes and interest are al examples of _____________ that are subtracted from adjusted gross income
Itemized deductions
The federal reserve role
Job creation, business growth, maintain money supply
Risk premium includes what factors?
Length of time, uncertainty of getting money back, and expected inflation
Interest rates represent the true cost of?
Money
Debt to pay ratio
Monthly credit payments / take home pay
Demographic most affected by inflation?
Persons on fixed income
Percentage increase in the value of savings as a result of interest earned
Rate of return
Criteria for selecting a savings plan
Rate of return Liquidity Safety Restriction and fees
Deductible taxes for the person/family paying
Real estate property taxes and state income taxes
Share accounts are the same as
Regular saving accounts
A certificate of deposit often charges a penalty for withdrawing funds before the maturity date. If there penalty invokes 3 months of interest what would be the amount for early withdrawal on a 19,000 5 percent CD? Early withdrawal penalty
$237.50= 19,000 x 0.05 x (3/12)
Phillip has investment of $200 that is expected to earn 10% annually. How much will the investment be worth at the end of the second year if the investment earns interest compounded annually ?
$242
If a person in a 33 percent tax bracket makes a deposit of $6800 to a tax deferred retirement account, what amount would be saved on current taxes?
$6,800 x 0.33 = $2,244
What would be the average tax rate for a person who paid taxes of $6,696.43 on a taxable income of $53,020?
0.1263 or 12.63% (6696.43/ 53,020)
2005, automobiles had an avg cost of $15,500. The average cost of those same automobiles is now $18,755. What was the rate of increase for these automobiles between the two time periods?
0.21 or 21% = (18,755-15,500)/15,500
Purpose of personal financial statements
1) report current financial position 2) measure progress towards financial goals 3) keep info about financial activities 4) provide data to prepare tax forms
3 major money management activities
1) storing and maintains personal financial records and documents 2) creating personal financial statements 3) creating and implementing a plan for spending and saving
4 major categories of taxes
1) taxes on purchases 2) taxes on property 3) taxes on wealth 4) taxes on earnings
To amend (change) a previous return, you need to file a
1040X form
Mortgage interest is reported to you by your mortgage lender on form
1098
Demand deposits
Checking accounts saving accounts
Example of a tax deferred income
IRA
Tax deferred investments
IRA , KEOGH , section 529 savings plans, tax deferred annuities
Values
Ideas and principles that a person considers correct, desirable, and important.
inflows of cash to an individual or household
Income
Two main taxes on salary
Income taxes & social security taxes
The cash flow is the __________ of cash during a given period of time
Inflow and outflow
Inability to pay your bills as they come due because your liabilities exceed your assets
Insolvency
Periodic charge for the use of credit
Interest
Self employed and own your own business you can establish
Keogh plan
Adjustments to gross income?
Keogh plans, ira contributions, penalties for early withdrawal of savings
Purpose of w-2
Report annual earning ands amount paid in taxes
The difference between the actual amount spent or received and the amount budgeted
Variance
Makes up the proof of income documents for taxpayers
W-2, W-2P, 1099 forms
Cash and other property with monetary value
Assets
Salary and wages are reported on
W-2 forms
Percentage rate expressing the total amount of interest that would be received based upon time and compounding
Annual percentage yield
A series of equal deposits or payments is called?
Annuity
How long should records pertaining to property and investments be retained?
As long as you own the assets
All in one account that includes savings, checking, borrowing, investing, and other financial services for a single fee
Asset or cash management account
Savings account offered by banks, savings and loan associations, and credit unions that requires a minimum balance and has earnings based on market interest rates
Money market account
Savings investment plan offered by investment companies
Money market fund
An example of tax exempt income
Municipal bonds
Owned by depositors & specializes in savings accounts and mortgage accounts
Mutual savings bank
Owned by depositors and specializes in savings and mortgages
Mutual savings bank