Finance - Exam 1

"Acierno rule of thumb"

"Monthly payment" + utilities <=20% of pre-tax income

Real cost of Sandra's loan per month =

$504 + $289 = $793 $504 to loan processor $289 into savings account Why not stock market?

what is the median retirement savings among all adults in the U.S.?

$63,000

Home as an investment Same time, size of homes:

1,500 sq feet to 2,349 sq feet 1.6% per year Suspiciously, that's also the after inflation increase in home values. -Price / sq. foot actually the same

Income Driven vs. Standard Plan When to choose standard 10 year vs income driven plan

Debt : Income Ratio - General rule of thumb: D:I < 1.0 always select standard plan D:I 1.0 - 2.0 grey area D:I > 2.0 always select income driven Example Emily - $60,000 : $80,000 0.75 standard plan Sandra- $260,000 : $80,000 3.25 income driven

Skyler is a new DVM with $300,000 of unsubsidized debt. Skyler has accepted a job in a small animal practice in Phoenix earning $100,000. (assume Skyler is single, no dependents, and current interest rates are 5.99%)) What is Skyler's discretionary income? Should Skyler select an income based or traditional repayment plan? Which loan repayment program(s) makes most sense? How much will Skyler need to save every month to cover the tax bomb? What is Skyler's monthly take home pay (assume AZ state tax is ~ 4.5%, assume 6k in pre tax withholding )? use calc

Disposable income = 80,860 ($100,000 -(1.50* $12,760)) Poverty level = $12,760 300,000:100,000 = 3 Skyler should select an income-based plan Payment will be $670 a month REPAY will have lowest tax bomb, but she will have made ~ $70k more in payments. So it's a personal choice. Skyler will need to save $349 per month

Income driven - tax bomb

IRS ruled that the balance of the loan forgiven is income Taxes must be paid as if the entire balance of the loan was earned Called the "Tax Bomb" For example: Sandra selects REPAY and in 25 years her loan forgiveness = ~$362,543 The IRS will count this as income. Assuming a 30 % tax rate, IRS will demand $108,762 on April 15th of the year following forgiveness

Veterinary Medicine Loan Repayment Program (VMLRP) 3 types of shortages:

Type I areas that can support a full time food animal vet and these require a 80% time commitment Type II critical need could not support a full time food animal vet. Requires a 30% time commitment Type III different types of employment typically government (city, county, state, federal), or academic

Diana is making $97,000 a year Front-end ratio = $2,263 Back-end ratio = $1,810 Maximum total payment = $1,810 Acierno rule -

"Monthly payment" + utilities = 8,083 * .20 = $1,616

Public Service Loan Forgiveness Program "Qualified payments"- Payments must be: Payments do not qualify if the borrower is:

"Qualified payments" -Non-defaulted William D. Ford Federal Direct Loan Program Payments must be: -For the full amount due (only the full amount), within 15 days after the due date -Qualified repayment plans - any income based plan (PAYE, REPAYE, IBR, etc). Payments do not qualify if the borrower is in-school, in the grace period, or has a deferment / a forbearance

Traditional Mortgage What if you don't have 20%

"Traditional mortgage" - you need 20% of total purchase $300,000 home - $60,000 $400,000 home - $80,000 Must not be gift or loan May be asked to prove source What if you don't have 20% (its kind of a lot) Private Mortgage Insurance (PMI) Physician's Mortgages

Samantha is selling her home for $340,000. Typically, how much does the realtor get paid from the sale of the house?

$20,400 340,000 * .06 = 20,400

Based on the below information, what are the dollar amount and percentage change in prices from 2019 to 2021?

$440, 12.85% 440/3425.45

Using the CPI inflation calculator (Links to an external site.), $5,000 in January 2000 has the same buying power as $------ in March 2021.

$7,845.88

Financial wellbeing

1. A financial status in that a consumer or family has adequate resources to live a comfortable life -what is adequate, who determines what a comfortable life? 2. When a person is able to meet expenses and has some money left over, is in control of their finances and feels financially secure, now and in the future -how much money left over? -control- managing in the best way you can 3. Having financial security and financial freedom of choice in the present and future People have different definitions of financial comfortability

James is making $90,000 a year. His student loans and credit card debt expenses run $950 a month. If we assume he has good credit, what is the maximum monthly house payment that a bank would likely allow him.

1750 90,000 * 12 =7500 7500 * .36 = 2700 2700 - 950 = 1750

How to compare offers?

1st step - pick a reference city Phoenix (lowest offer) 2nd step - use cost of living (COL) calculator If I make $75K in phoenix what would I have to earn in Miami, or San Diego .... 3rd step compare the COL to the actual offer

Public Service Loan Forgiveness Program In 2020 there has been a 1.8% approval rate 2018- other 72%- employment certification form:

2018 - last year with complete date <1.0 % approval rate 28% of the applications were filled out incorrectly Other 72% In the wrong repayment program Paid more than required monthly payment Paid in advance of the due date Other Employment Certification Form - annual opportunity for dept. of education to review your payments

Addison is a recently graduated DVM with $220,000 of unsubsidized debt. Addison has accepted a job in a small animal practice in Phoenix earning $89,000. (assume Addison is single, no dependents, and current interest rates are 6.26%) Assuming that Addison selected PAYE as her best option for repayment, how much will she need to save every month for the "tax box" (assume she can earn 2% on her savings)? The following link may be helpful: https://www.vin.com/studentdebtcenter/default.aspx?pid=14352&id=7578014

280

Lexi wants to purchase a $300,000 home. Assuming that she has applied for a "traditional mortgage" how much of a down payment will she need to provide the bank at the closing?

300,000 * .20 = 60,000

Opportunity cost ER vet makes $250 an hour, went to stand-up comedy, cost $30 had dinner $50. what is the opportunity cost?

4 hours * $250 = $1000 $1000 + $30 + $50 = $1,080 What is the value of satisfaction (utility)?

If you spend 92% of your monthly income, which is $4,750.00, what would be the saving dollar amount per month?

4750 * .92 = 4370 4750-4370 =380

compared with the national average there were ____ applicants (supply) for every one job (demand) before pandemic

5 applicant for one job

Addison is a recently graduated DVM with $220,000 of unsubsidized debt. Addison has accepted a job in a small animal practice in Phoenix earning $89,000. (assume Addison is single, no dependents, and current interest rates are 6.26%). What is Addison's monthly take home pay (assume: AZ state tax is ~ 4.5%, no city or local tax, and $7,000 in annual pre tax withholding The following webpage may be helpful: https://www.calculator.net/take-home-pay-calculator.html

5138.07

Addison is a recently graduated DVM with $220,000 of unsubsidized debt. Addison has accepted a job in a small animal practice in Phoenix earning $89,000. (assume Addison is single, no dependents, and current interest rates are 6.26%) Assuming that Addison selected PAYE as her best option for repayment, what is her monthly payment? The following link may be helpful: https://www.vin.com/studentdebtcenter/default.aspx?pid=14352&id=757801

577

Addison is a recently graduated DVM with $220,000 of unsubsidized debt. She has accepted a job in a small animal practice in Phoenix earning $89,000. (assume Addison is single, no dependents, and current poverty level is $12,760)) What is Addison's discretionary income?

69,860 1.50*12,760 = 19,140 89,000 - 19,149 = 69,860

Sara is thinking of buying a house. Assuming the following: Home price : 300,000 Down payment : 20% Interest 3.74% Term 30 years HOA Fees : $2,400 Maintenance - 3% A comparable rental costs $2,000 a month. Using the buy vs rent calculator at this link, (Links to an external site.)In how in how many years would it be less expensive to buy than rent. (Only worry about the data provided above - the rest of the home information provided by the estimator is correct. Also, please round to the closest integer).

7

Addison is a recently graduated DVM with $220,000 of unsubsidized debt. Addison has accepted a job in a small animal practice in Phoenix earning $89,000. (assume Addison is single, no dependents, and current interest rates are 6.26%)) Based on Addison's debt to income ratio, what would be her best option for repayment?

89000:220000 D:I = 2.5 D:I < 1.0 always select standard plan D:I 1.0 - 2.0 grey area D:I > 2.0 always select income driven Pay as you earn repayment plan

Home Purchases Realtors

> 50% buyers find their own homes online e.g. Zillow, Trulia, Forsalebyowner, etc ...yet 87% sales (1.36 million ) involve an agent -Commission ~6.0 % -Paid for by the seller $300,000 house 6% commission = $18,000!

What is Financial Literacy?

A combination of awareness, knowledge, skills, attitude and behavior necessary to make sound financial decisions and ultimately achieve individual financial wellbeing Awareness, knowledge, skills, attitude and behavior attitude and behavior- age, education, occupation and income level of the individual affects their investment behavior ex- my credit score is good, i file and pay my taxes online

if inflation goes up A. the purchasing power of your money reduces B. Lenders charge higher rate of interest C. more clients will choose to spend less or not got to the vet

ALL are correct

Student Loans The problem Average debt of veterinary graduates

Average debt of veterinary graduates ~ $150,000 18.2% of graduates reported $0 debt 32.1% reported < $100,000 debt 10.7% reported debt > $300,000

Looking at the chart, which project would you choose?

B- it is positive

Credit Score Just a 3-digit number but....

Banks - approving a mortgage & setting interest rate Credit - approve credit cards and set limits Landlords - check scores before renting Employers - check credit reports when hiring

PAYE vs REPAYE

Both Monthly payments =10% of DI PAYE Spouse's income and debt only considered if you file a joint tax return Outstanding balance forgiven after 20 years Payment plan will NEVER be more than 10-year standard plan Subsidized loans are interest subsidized for first 3 years. REPAYE Spouse's income & debt MUST be used for calculating repayment Outstanding balance forgiven after 25 years Monthly payment CAN be more than 10-year standard repayment plan 50% of interest (subsidized & unsubsidized) for life of loan

Credit Score Credit Karma

Breaks down factors contributing to credit score Explains how each of these affect score Scans reports for new accounts Warning if your passwords exposed in a data breach Looks for unclaimed money Other apps: Mint: Money Manager, Credit Sesame, Credit.com, and CreditWise.

Credit Score Called a FICO score

Created in 1956 by engineer Bill Fair and mathematician Earl Isaac 800-850 = excellent 740-799 = very good 670 to 739 = good < 669 = fair to poor Who maintains this score? Equifax, Experian and TransUnion

Four types of Financial Activities

Earning- gaining money through employment, investment (cash inflow) -career choice, place of employment, level of education, skills, prior job performance, economics, conditions, ability to advance Spending- spending money to buy goods and services (Cash outflow) -we tend to pay more for non-durable goods -soft goods vs. durable goods Saving-disposable income minus all expenses --> personal saving rate: personal saving / disposable income (monthly expenses) Borrowing- amount of money a financial institution is willing to loan to a person or business entity -purpose= be involved in an activity that generates stable/healthy return and provides satisfaction (utility of consumption) over time -consider: interest rate, loan terms, credit score, collateral, co-signer -->care loan-> longer the term of the loan, the more money is collected in interest

Revised pay as you earn repayment plan - REPAYE

Eligible loans: Most government loans (No Parent+ Loans) Monthly payments =10% of DI - re-calculated annually (must re-file every year) Spouse's income & debt MUST be used for calculating repayment Outstanding balance forgiven after 25 years Monthly payment CAN be more than 10-year standard plan Plan is 50% interest subsidized for the entire 25 years

Pay as you earn repayment plan - PAYE

Eligible: Most government (No Parent + Loans) loans made on or after Oct. 1, 2007 Monthly payments =10% of DI - re-calculated annually (must re-file every year) Spouse's income and debt only considered if joint tax return Outstanding balance is forgiven after 20 years Payment plan can NEVER be more than 10-year standard plan Subsidized loans are 100% interest subsidized for first 3 years, no interest subsidy on non-subsidized loans.

Credit Score FTC reports 1 in 5 people have:

FTC reports 1 in 5 people have significant errors on their credit report Legally, you can request 1 free credit report from each credit agencies / year Annualcreditreport.com 877-322-8228

How do banks determine how much to lend?

Font-end and Back-end ratios Typically, banks lend an amount that results in a monthly payment that is the lessor of the two

Veterinary Medicine Loan Repayment Program (VMLRP)

Food animal vet willing to practice in underserved area min. 3 years -Equine, camelid, pathology History - 1950s ½ of vets were food animal practitioners -Today ~8% Impossible task of building a rural practice Each award is for 3 years Repay up to $25,000 of student loans per year Awardees can reapply for additional 3 years Highly competitive In 2014 there were 163 new applicants 52 were accepted In 2011 75 awards, 27 applied for renewal, 13 renewed

Public Service Loan Forgiveness Program

Forgives remaining balance on direct loans if: Work full-time (30 hours or more) For a "qualified employer" Make 120 "qualifying monthly payments" Qualified employer: Government organizations (federal, state, local, or tribal) Not-for-profit tax-exempt organizations Section 501(c)(3) Not-for-profit organizations not Section 501 (c) if their purpose is to provide certain types of public services Serving as a full-time AmeriCorps or Peace Corps volunteer

Diana is making $97,000 a year Student loans & credit expenses = $1,100/month What is the maximum monthly payment that a bank would allow?

Front-end ratio Monthly pre-tax income X 28% $97,000 / 12 = $8,083 X 0.28 = $2,263 Back-end ratio (Monthly pre-tax income X 36%) - total expenses $97,000 / 12 = $8,083 x 0.36= $2,909 - $1,100 = $1,810 Maximum total payment? $1,81

Realtors Moehrl v National Association Realtors

Home sellers claiming that NAR's policies are a violation of antitrust law NAR requires non-negotiable commission fees when listing a home

Home Purchases Home as an investment

Homes do tend to appreciate -Are they really an investment? Expensive investment -Expect 1% - 3% of the value for maintenance -Would never accept this from most investments

Interest subsidy

If monthly payment doesn't cover the interest that accrues the government will cover it PAYE: No subsidy on unsubsidized loans REPAYE: 50% of interest due on all loans

Private Mortgage Insurance (PMI)

If you don't have 20% down payment PMI - insurance that pays bank if you stop making payments Insurance company then owns the house Costs 0.5% -5.0% value of the loan /year -Credit score -How much of a down payment you make Example Purchase a $200,000 home You have 10% ($20,000) Assume excellent credit rating PMI might be 1.0% -$1,800 / year or $150 / month PMI expense PMI is included in calculated "monthly expense"

What if Sandra wanted to be "debt free"

If you really want to be debt free - don't buy a house! Sandra's estimated take-home pay ~$4,700 /month If she uses the standard plan she is left with $1,765 ($4,700 - $2,935) Average rent in 1 BR Chandler, AZ is $1,378 leaving her with $387 Not including car payments, insurance, food, entertainment, personal care, medical, prescriptions, cloths, vacation, etc. .......Its going to be a long 10 years

The down payment

In most cases you need 20% of the house's value in cash (check, wire transfer) Why? You are less likely to walk away if you have a significant investment. If you stop making payments bank can can sell the house without losing money

Physician's Mortgages

Includes: physicians, veterinarians, dentists, podiatrists, and optometrists Certain professionals start with a lot of debt but have income potential Unlikely to default on loans Medical professionals tend to accumulate wealth -Banks want to cultivate the relationship Physicians mortgages are profitable for the bank -They charge higher interest

Student Loans Discretionary income

Income driven plans Monthly payments 10% of discretionary income (DI) 20 - 25 year term* Any remaining loan balance is forgiven at the end of the term Discretionary income = everything earned above 150% of the "poverty level" -Single person, contiguous US - poverty defined as $12,760/ year -Married couple, contiguous US - poverty defined as $17,240 / year --If you are single DI is everything above $19,140 (1.50 * $12,760) --E.g. If you make $80k/year, DI = $60,860 ($80,000 -(1.50* $12,760))

Home Purchases Location Considerations for a job after graduation

Internship Significant other Family Important consideration - location Cost of living can vary significantly Some areas are more expensive -Salary simply doesn't buy as much Cost of living the same life style as $75,000 in Phoenix Las Vegas, NV: $79,928 Miami, FL $90,015 San Diego, CA $112,962

Alyssa, a fourth year veterinary student, receives the following 4 job offers: Phoenix, AZ $72,000 San Diego,CA $89,000 Baton Rouge, LA $60,000 Jacksonville, FL $70,000 Ignoring intangibles (climate, family, significant other, etc.) which job offers the best economic opportunity? Please use this link (Links to an external site.) in making your determination

Jacksonville, FL

Rent vs Buy Mortgage interest tax deduction? Everyone entitled to "standard deduction" Single & $100,000 income - $12,000 deduction

Mortgage interest tax deduction? Often used as justification to buy Reduces the income on which you pay tax Everyone entitled to "standard deduction" -Single deduction $12,400 -Head of households $18,650 -Married couples $24,800 Single & $100,000 income - $12,000 deduction Only pay tax on $88,000

Annual expected maintenance

Not: lawn service, gardening, home improvement Expect 1% - 3% of the value of the home / year If you have a $300,000 home -EXPECT $3,000 - $9,000 / year Refrigerator, heating / cooling, roof, painting etc. $350,000 house: $3,500 - $10,000 / year Need to save ~$290 - $875 / month $67- $192 / week What isn't spent in one year is carried to next Must continue to save at 1%-3% / year Automate your savings

Student loan "experts"

Often little or no real financial experience or education -Most - "fee-based" -You pay a fee for their advice -Commission for every federal student loan converted to a private one -Obvious conflict of interest "Fee-only" financial - advisors work exclusively for a fee -Fiduciary (legal) responsibility

Credit Score Factors that go into the score :

Payment history - Are you slow making payments ? (~35%) % of my current borrowing capacity utilized (~35%) -Maxed out credit hurts score Average time you have held all credit accounts -new debt lowers score Total account # - More is better to a point, then no so much # inquiries on your account in past 3 years - Fewer is better.

Front-end ratio

Portion of income allocated to monthly payments Monthly pre-tax income X 28% -28% is the maximum lenders want to see spent on housing Example: You make $100,000/year or $8,333/month $8,333 * 0.28 = $2,333 -The maximum front-end "monthly payment" (mortgage payment, insurance, property taxes, home owners association, etc) = $2,333

Rent Vs. Buy Major factors

Principal - the amount borrowed from the bank -Payment of principal is how you "build equity" -Early payments are a lot of interest & don't build equity quickly -Higher the principal the longer it takes to build equity Interest - now ~ 2.75% Taxes - property tax paid on home ownership Insurance - including PMI

Mortgage Example You purchase a $300,000 home, with a 15/year physician's mortgage 4% interest rate

Property tax is 2400/year Home insurance costs $1,000 /year HOA - $1,200 / year If you show up to the closing with $30,000 Monthly payment = $ 2,380 Total payment after 15 years = $428,488 Total interest after 15 years = $89,488

Physician's Mortgages Purchase a house w/o 20% down payment- Advantages-

Purchase a house w/o 20% down payment Pay higher interest rate - often 1% Extra interest is for life of mortgage Advantages They require little to no down payment No PMI Banks may ignore student loans Banks may accept a job offer as proof of earnings

Home Purchases How Much Home Can I Afford

Question should be how much "monthly payment" can I spend Monthly payment composed of: Mortgage payment Insurance Property taxes Homeowners association fees Private mortgage insurance

What about switching from REPAYE to PAYE

REPAYE - 50% interest subsidized for life of loan Sandra : Monthly loan payment = $504 Annual loan payment = $6,048 $260,000 unsubsidized loan @ 6.36% Year interest ~ $16,562 Sandra's payments fail to cover $10k/year of interest Each year government covers ~ $5,000 of unpaid interest, $5,000 accumulates As long as Sandra stays in REPAYE the unpaid interest just accumulates If she leaves the program, the unpaid interest becomes capitalized Capitalized = added to loan balance After 10 years Sandra gets married - $50,000 of interest becomes capitalized "Tax bomb" now on the interest on 50K additional loans REPAYE can cause repayment issues if you ever plan on getting married to someone not drowning in debt! REPAYE probably best if You're single and plan to say single (forever) You are marrying someone with equivalent debt

PMI "Rules"

Rate depends on credit score & down payment -Every monthly mortgage payment made up of Interest, principal, escrow, and PMI -When down payment + principal payments = 20 % of home's value you can ask to stop the PMI -When down payment + principal payments = 22% home's value lender must stop the PMI

Credit Freeze

Restrict access to your credit report Makes it difficult for thieves to open new accounts in your name Must be done with each of the 3 credit bureaus Free

Interest subsidy REPAYE - 50% interest subsidized for life of loan

Sandra : Monthly loan payment = $504 Annual loan payment = $6,048 $260,000 unsubsidized loan @ 6.37% Year interest ~ $16,562 There is ~10k/year of unpaid interest. Government will pay ~ 5K

REPAYE and a wedding Sandra is getting married after graduation Partner is an investment banker making $150,000 No significant debt Sandra is in REPAY

Sandra's pre-wedding REPAYE payment $504 (red) Sandra's post-wedding REPAYE payment $1,905 (blue) What Happened? In REPAYE partner's income / debt is included No matter how you file There is no maximum monthly payment

After many years of experience, I know how to build a profitable portfolio. I am a conservative person and below is a combination of my portfolio: 60% in fixed income securities, 30% in the equities, and 10% in cash. Based on the examples of financial literacy, this will be considered as

Skills

Home as an investment National Association of Realtors (NAR)

Spends large amount each year promoting the idea that "a home is an investment " Commonly quoted statistic - 1968 - 2004, average yearly increase of 6.4% -Very selective date range -1968 - 2004 S&P 500 experienced average annual returns of 9.45% --After inflation - averaged 4.81% -After inflation annual home value increase was only 1.6%

Income-Based Repayment Plan - IBR

Spouse's income and debt only considered if you file a joint return Outstanding balance is forgiven after 20 years Monthly payments are 10% of DI (must re-file every year) No subsidy on non-subsidized loans

Student Loans Federal Loan Repayment Plans- Standard vs income driven

Standard Plans The standard repayment plan* Graduated repayment plan Extended repayment plan Income driven plans Pay as you earn repayment plan (PAYE)* Revised pay as you earn repayment plan (REPAYE)* Income-Based Repayment Plan (IBR)

Sally's annual pre-tax income is $100,000. Her monthly expenses including student loans and a car payment total $1,000

Step 1 Total monthly expenses = $1,000 Step 2 $8,333 X 0.36 = $2,999 Step 3 $2,999 - $1,000 = $1,999 Sally's front-end maximum = $2,333 Sally's back-end maximum = $1,999 Max bank would lend = monthly payment $1,999 Mortgage, insurance, property taxes, home owners association, etc

Credit Score Mistake on your credit report?

Step 1: Snail-mail the credit agency - notify them about the mistake Include any documentation Keep copies of EVERYTHING Send the letter "Return Receipt Requested" or FedEx / UPS signature required Step 2: Write to the company making the inaccurate report.

Physician's Mortgages Issues

The fees & interest rates substantially higher Unlike PMI - never go away Available only to new graduates, interns, residents, etc. Not all types of homes maybe eligible (e.g. condominiums, townhomes)

Standard student loan plans The standard repayment plan - Graduated repayment plan - Extended repayment plan -

The standard repayment plan Payments are fixed, loans paid off in 10 years High monthly payment, lowest total cost Graduated repayment plan Payments lower at first then increase (~2years). Paid off in 10 years Extended repayment plan Payments fixed or graduated. Paid off in 25 years

Income driven plan feature

There is an unpaid balance Monthly payments do not result in loan payoff In many cases this is > than the original loan! "Amount forgiven" - debt that you can walk away from

Financial and practice management

Weighs economics factors in personal & business decision-making applies financial principles to professional decisions (debt repayment plan) explains work-related insurance (personal, professional, patient) Describes relationship between revenue generation, expense categories, and compensation including benefits

Back-end ratio

What portion of a person's monthly income goes toward paying debts - max 36% 3-step process Step 1 Add up all monthly expenses (e.g. auto, student loans, credit cards minimum payments, etc.) Step 2 Monthly pre-tax income X 36% Step 3 Max back-end monthly payment = Step 2 - Step 1

Sandra's pre-wedding PAYE payment $464 Sandra's post-wedding PAYE payment $464

Why is PAYE unaffected? In PAYE partner's income / debt can be omitted Filing married but separately

Rent Vs. Buy

Why renting may be better Renters don't waste money Pay for a place to live Cost of homeownership higher than mortgage Repairs, insurance, taxes, HOA fees If you will live there <5 years strongly consider renting Closing costs > growth in the home's value -Closing costs : Home appraisal, home Inspection, property taxes, 1st year's insurance, loan origination charge, credit report fee, flood certification fee, title insurance, recording taxes, transfer taxes

Public Service Loan Forgiveness Program Veterinary positions that qualify?

Work for US veterinary school (public or private) -Internship & residencies Working as state / federal public health officials Armed forces State / federal laboratories Animal shelters and rescue organizations

Home Purchases Tax deduction

You can choose to itemize instead Itemization : Mortgage interest, property taxes (Limited), some medical expenses $300,000 home, $220,000 mortgage at 4% interest ~ $8,800 first year Since an individual gets standard deduction of $12,400 ($24,800 married) 90% of families chose standard deduction Get this renting or buying

Mortgage Example

You purchase a $300,000 home, with a 15/year mortgage 3% interest rate Property tax is 2400/year Home insurance costs $1,000 /year HOA - $1,200 / year If you show up to the closing with $60,000: Monthly payment = $2,040 Total payment after 15 years = $367,331 Total interest after 15 years = $58,331

Personal finance

a term that covers managing your money as well as saving and investing. It encompasses budgeting, banking, insurance, mortgages, investments, retirement planning, and tax and estate planning. Often refers to the entire industry that provides financial services to individuals and households and advises them about financial and investment opportunities

costs and benefits of college

actual expenses and opportunity cost for a person costs and benefits to the society -shortages of vets, issues community may have due to costs areas of education that have impact on economic growth (STEM) Personal and governmental funds for education

Long term investment

any financial assets that people or business keep for a long period of time (>1yr) ex: stocks, bonds, real estate, mutual funds, corporate bonds they are considered high-risk investment opportunities but pay or provide higher rate of return (reward) as well The most significant risk of long term investment is market volatility (price flucuations)

Short term investment

any financial assets that people or businesses keep for short period of time (<1yr) ex: certificates of deposits, high-yield savings accounts, gov. bonds, treasury bills, municipal bonds they are highly liquid assets i.e. you can sell them faster than long term assets they are low-risk investment opportunities but pay or provide lower rate of return (reward) as well

Which of the following statement is correct? a. Low-risk investments opportunities provide higher rate of return. b. High-risk investments opportunities provide higher rate of return. c. Long term investments are highly liquid. d. Treasury bills are an example of long term investments.

b. High-risk investments opportunities provide higher rate of return.

Value of education: is it a good investment? Demand and supply for human capital-

companies typically project their expected needs for supplies, equipment, building capacity, and financing -ex- higher interest rate on graduate degree compared to undergraduate degree because there are less people in the graduate schools which are also more expensive they need to make sure that their human resource needs are met the amount of physical, mental and social efforts to produce goods and services called labor there are three levels of skills: unskilled labor, semi-skilled labor, high skilled labor The higher the education- the bigger the salary - the less unemployed in that field

demand vs supply

demand - what they want supply- what is available

Interest rate

if you borrow money or use credit from any financial institution that is the rate charged by a lender when you deposit your money in any financial institution as a savings account or certification of deposit, you earn an interest rate lenders are mostly a financial institution the percentage that they charge you on the principle

Internal rate of return (IRR):

is the rate that makes the NPV of a project zero If your expected rate of return is less or equal to the IRR, accept the project

Inflation Rate

rate at which the general level of prices for goods and services is rising and consequently the purchasing power of currency is falling A basket of selected goods is used to measure inflation over time In ex- inflation rate = 3.57% difference divided by old or change over old

Student loans and tax deductions Interest is deductible (sort of) What is a deduction?

reduces taxable income $2,500 in total interest per return So if you are single - up to $2,500 If you are married filing joint return - up to $2,500 total If you are married filing individually- up to $2,500 each

Opportunity costs Internal rate of return IRR= NPV=

the rate that makes the NPV of a project zero NPV= net project value (always has to be positive otherwise you lose money) NPV= cash flow/(1 +i)^t - initial investment pv= 1000 fv=1200 i=interest rate t= duration of investment NPV= 1200/ (1 + 10%)^1 -1000 = 1091 - 1000 = 91 NPV= $91 Net present value (NPV) has to be always positive i.e. GREATER THAN 0, otherwise you lose money!!!!!!!!!

The concept of utility- why do people buy goods and services?

why do people buy goods and services? because they provide us with satisfaction, this is called utility determined by how much satisfaction a particular consumer obtains from it. Utility is not a quality inherent in the good or service itself a rational consumer tries to maximize the utility over time (life cycle) considering their preferences in using goods and services and minimizes the costs associated with acquiring those goods and services -consumer preferences (risk aversion and discount rates) -the economic environment (risky returns on investments and liquidity constraints) -social safety net benefits (the avial and generosity of welfare and SS benefits)