Bus 201 Exam #1

Balance sheet

(AKA net worth statement or statement of financial position) reports what you own or owe.

Gross (total) income consists of 3 main components

1)Earned income 2)Investment income 3)Passive income

6 steps of financial planning

1. Determine your current financial situation 2. Develop your financial goals 3. Identify alternative courses of action 4. Evaluate your alternatives 5. Create and implement your financial plan of action 6. Review and revise your plan

Phases of budgeting

Assess your current situation, plan financial direction, implement your budget, evaluate budget program

Hard copies

Birth certificates Property deeds Life insurance policies Warranty services

Liabilities

Current, Long term

Wealth

Death tax. an estate tax is imposed on the value of a person's property at time of his or her death. This federal tax is based on the fair market value of the deceased individual's investments, property, and bank accounts less allowable deductions and other taxes.

tax brackets

Each of the tax rates represents a range of income levels

CPI (Consumer Price Index)

It is the measure of the average changes in the prices urban consumers pay for a fixed 'basket' of goods and services.

Assets

Liquid Assets Real Estate Personal Possession Investment Assets

Purpose of budget

Live within your income Spend your money wisely Reach your financial goals Prepare for financial emergencies Develop wise financial management habits

Itemized deductions

Medical and dental expenses Taxes Interest Contribution of cash or property to qualified charitable organizations Casualty and theft losses Moving expenses Job-related and other miscellaneous expense

Vishing

Phishing by phone

Smishing

Phishing by text or message

SMART goals

Specific, measurable, action oriented, realistic, time based

Earnings

The two main taxes on wages and salaries are Social Security and income taxes.

marginal tax rates

These rates are used to calculate tax on the last (and next) dollar of taxable income.

earned income credit

This federal tax regulation, for working parents with taxable income under a certain amount ($53,505 in 2016 for three or more children), can result in a tax credit of up to $6,044.

Net worth

This is the amount you would have if all assets were sold for the listed values and all debts were paid in full.

Cash Surplus or deficit

Total cash received during the time period - Cash outflows during the time period

Inflation

a rise in the general level of prices. (high leads to value of $ decrease)

Phishing

a scam that uses e-mail spam or pop-up message to deceive you into revealing your credit card number, bank account information, Social Security number, passwords, or other private information.

Achiever

a strong financial resource base

Taxable income

adjusted gross income - (total itemized deductions + value of exemptions)

personal factors

age, income, household size, marriage status

asset management account

also called a cash management account or a wealth management account provides a complete financial services program for a single fee.

Debit card

also known as a cash card. In contrast to a credit card, you are spending your own funds rather than borrowing additional funds

exclusion

an amount not included in gross income.

tax credit

an amount subtracted directly from the amount of taxes owed

Overdraft protection

an automatic loan made to checking account customers for checks written in excess of the available balance.

cause of inflation

an increase in demand without a comparable increase in supply.

itemized deductions

are expenses a taxpayer is allowed to deduct from adjusted gross income

Tax shelters

are investments that provide immediate tax benefits and a reasonable expectation of a future financial return

FDIC (Federal Deposit Insurance Corporation)

coverage prevents a loss of money due to the failure of the insured institutions.

FICA (The Federal Insurance Contributions Act)

created the Social Security Tax to fund the old-age, survivors, and disability insurance portion of the Social Security system and the hospital insurance portion (Medicare).

Deflation

decline in prices

Take-home pay (net pay)

earnings after deductions for taxes and other items

Who is inflation most harmful to?

elderly

tax-exempt income

exemptions or income not subject to tax. interest earned on most state and city bonds is exempt from federal income tax.

Cash Outflows

fixed expenses and variable expenses

Striver

has minimal financial resources and would have to carefully plan to use available funds

Prepaid Debit Cards

have become a popular alternative to checking accounts. They are issued by many financial service providers, including banks, credit card companies, retailers (such as Walmart, Macys, etc.), and nonbank companies specifically created to provide this financial service

CD (certificate of deposit)

higher earnings are commonly available when money is on deposit for a set of time period. Usually ranges from 30 days to five years to earn a specific rate of return.

credit vs deduction

in that a tax credit has a full dollar effect in lowering taxes, whereas a deduction reduces the taxable income on which the tax liability is computed.

exemption

is a deduction from adjusted gross income for yourself, your spouse, and qualified dependents.

Trust

is a legal agreement that provides for the management and control of assets by one party for the benefit of another.

tax deduction

is an amount subtracted from adjusted gross income to arrive at taxable income. Every taxpayer receives at least the standard , a set amount on which taxes are not paid

Credit

is an arrangement to receive cash, goods, or services now and pay for them in the future

alternative minium tax

is designed to ensure that those who receive tax breaks also pay their fair share of taxes.

Adjusted Gross Income

is gross income after certain reductions have been made. These reductions, called adjustments to income, include contributions to an IRA or a Keogh retirement plan, penalties for early withdrawal of savings, and alimony payments.

tax-deffered income

is income that will be taxed at a later date. For example: earnings on an IRA (individual retirement account) are credited to your account NOW but you PAY TAXES LATER.

personal financial planning

is the process of managing your money to achiever personal economic satisfaction.

Consumer credit

is the use of credit for personal needs (except a home mortgage) by individuals and families

Credit unions

is user-owned, nonprofit, cooperative financial institution

ATM (Automated Teller Machine)

it facilitates banking transactions online at all hours of the day in various locations.

I bonds

it has an interest rate based on two components: (1) a fixed rate for the life of the bond, and (2) an inflation rate that changes twice a year

Money Market fund

it is a combination savings-investment plan in which the investment company uses your money to purchase a variety of short-term financial instruments.

Interest rates

it represents the cost of money.

Savings bonds

low-risk savings program guaranteed by the federal government that can be used to achieve financial goals.

Finance companies

making loans to consumers and small businesses is the main function of finance companies. These loans have short and intermediate terms with higher rates than most other lenders charge.

EE bonds

may be purchased for any amount greater than $25 and are purchased online at face value. s increase in value as interest accrues monthly and compound semiannually.

Discretionary income

money left over after paying for housing, food, and other necessities.

Fed maintains

money supply and interest rates

Share accounts

named used for savings plans.

Amounts given for the payment of tuition or medical expenses are

not subject to federal gift taxes.

Commercial banks

offers a full range of financial services, including checking, savings, and lending, along with other services

Mutual savings bank

owned by the depositors and also specializes in savings and mortgages.

Failure to file on time can result in a

penalty of 5 percent for any portion of a month (even one-day).

Capital gains

profits from the sale of a capital asset such as stocks, bonds, or real estate, are also deferred: you do not have to pay the tax on these profits until the asset is sold.

4 categories of taxes

purchases, property, wealth, earnings

money management

refers to the day-to-day financial activities necessary to manage current personal economic resources while working toward long-term financial security.

You are ___to keep records to document tax deductions.

required

Truth in savings

requires financial institutions to disclose the following information on savings accounts plans: Fees on deposit accounts The interest rate The annual percentage yield (APY) Other terms and condition of the savings plan

What states do not have income tax?

seven states do not have a state income tax.

Savings and loan associations

specialized in savings accounts and home mortgages.

Property

tax is a major source of revenue for local governments. This tax is based on value of land and buildings. Some areas also impose personal property taxes.

disposable income (take- home pay)

the amount a person or household has available to spend.

Federal Reserve System

the central bank of the United States.

Taxable income

the net amount of income, after allowable deductions, on which income tax is computed.

Inflation rate

the rate of return you earn on your savings should be compared with the . As the increases, the interest rate offered to savers (should) also increase

Brokerage firms

these organizations employs investment advisers and financial planners, and serve as agents between the buyer and seller for stocks, bonds, and other investment securities. Their earnings come from commissions and fees

Mortgage companies

they are organized primarily to provide loans to purchase homes.

regular savings account

they usually involve a low or minimum balance. Savers receive a monthly or quarterly statement with a summary of transactions. A regular savings account usually allows you to withdraw money as needed.

Money market account

this is a savings account that requires a minimum balance and has earnings based on current market interest rates. This savings plan may allow you to write a limited number of checks to make large payments or to transfer money to other accounts.

Consumer spending

total demand for goods and services in the economy influences employment opportunities and the potential for income.

average tax rate

total tax due divided by taxable income

Opportunity cost

what you give up - when you evaluate, select, and use financial services.

Explorer

which is someone seeking to get to the next level of financial success

Purchases

you probably pay sales tax on many. State and local tax is added to the purchase price of products.

Liquidity

you should consider the degree of l you desire in relation to your savings goals. To achieve long-term financial goals, many people trade-off __ for higher return.

3 ways consumers can finance purchases

•Draw on savings •Use present earnings •Borrow against expected future income

closed-end credit

•Single loan for a specific purpose and a specified amount that you pay back in a specified period of time and in payments of equal amounts •Installment sales credit, installment cash credit, and single lump-sum credit •Mortgage, automobile, and installment loans for furniture or appliances