Unit 3 Personal Finance Review

How much should you have saved by the time you're 21?

$6,000

High yield savings account

(APY) annual percentage yield. Great place for your emergency fund

FDIC

(Federal Deposit Insurance Corporation) an independent federal agency insuring deposits in US banks in the event of bank failures. The FDIC was created in 1933 to encourage stability in the financial system.

Roth IRA

A Roth individual retirement account is a retirement savings account with different tax advantages... Your taxes will be the same regardless of how much money you put into the account, but you are not taxed on the gains or withdrawals.

Robo-Advisor

A broker that provides algorithm-driven financial planning services with little to no human supervision. Asks questions about your income, goals, etc. and then uses the data to offer advice and automatically invest for you. Fees and more than Discount brokers, but way less than Full-Service brokers.

Direct deposit

A method of payment employers use to pay their employees rather than a paper paycheck. On payday, funds are automatically deposited into the employees account.

Credit Union

A nonprofit financial institution that is owned and operated by it's account holders known as members. Typically, these institutions have low interest for loans and very few fees.

Credit Card

A plastic card connected to a loan from a bank or credit union. This card can be used to make purchases online or in stores. You must pay back all transactions made with this card.

high-yield savings account

A savings account that pays a higher interest than a standard savings account. You may access this money at anytime

Stock

A stock is a security that represents a fractional ownership in a company. When you buy a company's stock, you're purchasing a small piece of that company, called a share.

What is a stockbroker (AKA investment advisor)?

A stockbroker (AKA investment advisor) is a financial professional who executes orders in the market on behalf of clients.

Certificate of Deposit (CD)

A type of savings account with a fixed interest rate and a fixed date of withdrawal, known as the maturity date. Terms range from 1-5 yrs.

When depositing money into a CD or High-Yield Savings account, it's best to research online for a high ____.

APY (Annual Percentage Yield)

checking account

An account that is best for frequent transactions. It has a debit card and checks.

IRA

An individual retirement account is a retirement savings account with tax advantages. In a traditional account, you are not taxed for anything you put into the IRA, which lowers your taxable income. As of 2022, there is a contribution limit of $6,000.

Ways to deposit money INTO your account (called a credit):

At a bank branch Through an ATM Direct deposit from your employer Electronic transfer in from another account Mobile app deposit 3rd part app (ex: person-to-person payment)

Ways to withdraw money FROM your checking account (called a debit):

At a bank branch Through an atm Use debit card to make a purchase in-person/online Write a check Electronic transfer out to another account Online bill pay Mobile app withdraw/payment 3rd part app (ex: person-to-person payment)

Bond

Bonds are simple interests. A bond is lending money and getting money back. The cost of buying a bond is the face value. The interest rate received from a bond is a coupon

Tips to build your savings at 21:

Build your emergency fund Avoid credit card debt Take advantage of compound interest Pay off student loans strategically Don't succumb to lifestyle inflation

Discount Broker

Carries out buy and sell orders with little or no commissions. Does not provide the investment advice or guidance provided by a full-service broker. Completed online.

Steps to start investing...

Choose an investment strategy/goal Choose a brokerage Choose an account type (or a few account types). Pick investment types.

What does an investment strategy depend on?

Depends on: You age, Money available, Risk tolerance, Goals Strategies can range from conservative to highly aggressive (which depends on your goals and your investment style/personality).

T/F: It's best to keep your emergency fund in your checking account so you can easily access your money,

False

T/F: Standard savings accounts usually offer very high interest rates

False

What are the brokerage types?

Full service Discount/ DIY Robo-advisors

Characteristics of Credit Unions

Has most services Non-profit No customers, has members Members share common bond NCUSIF Reduced fees Better interest rates on deposits Better loan terms

Excessive transactions fee

If you're making more than 6 transactions on a savings account, you have to pay a fee

Characteristics of Big Banks

International travelers Online digital tools

Characteristics of Banks

Local: Invest in local area Online: lower fees, ATMs free For-profit FDIC

Mobile banking alerts to use:

Low balance Direct deposit Unusual account activity Large purchase ATM withdrawal Profile change

Deposit

Money being put into your account

Withdrawal

Money being taken out of your account or spent by electronic transactions

Emergency fund

Money set aside in a savings account for when things go wrong. It's recommended to have 3-6 month worth of expenses in this account.

A group of 40-100 stocks, managed by a professional stock manager. Since the fund is actively managed, investors are charged higher fees (1-2% of yearly investment fees) in order to pay the manager. These fees may slowly eat into your investment profits over a long period of time

Mutual Funds

What is the exact same as FDIC?

NCUA

401 (k)

Offered by the employer. A company-sponsored retirement account to which employees can contribute income, while employers may match contribution. For For-Profit companies.

Which of the following describes how overdraft protection works?

Overdraft protection allows you to spend more money than what's available in your account, but for a large fee (often $35 per transaction).

Debit card

Plastic card connected to your checking account. This card can be used to make purchases online or in stores.

Full service brokers

Provide a large variety of services to its clients, including research and advice, retirement planning, tax tips, and much more... but they charge a significant fee

List reasons why you need a checking account

Safety and protection Convenient and Free check cashing Convenient and free bill pay Debit card convenience Budgeting tools

Money Market account

Similar APY's as high yield, issued a debit card or have the ability to write checks to access your money in the account automatically, without needing a linked checking account.

Inflation

The rise in general level of prices over time. A candy bar costs a lot more today than it did 50 yrs ago, much do to the loss in purchasing power over time.

Overdraft Fee

When you don't have enough money in your account to pay for stuff.

insufficent funds

When you write a bad check

Unbanked

You are not currently utilizing a bank. People don't use banks because they are scared of them. Started with the Great Depression.

Underbanked

You don't access some of the perks, can't get loans, connection between education and underbanked.

When should you invest?

You should invest when you've paid off high-interest debts, you have 3-6 months savings in your emergency fund, you have long-term goals that require a lot of cash.

Stock Market

a general term used to describe the place where all transactions involving the buying and selling of stock shares issued by a company take place.

Investors purchase stocks in companies they think will go up in value. If that happens, the company's stock increases in value as well. The stock can then be sold for a profit. This is called _____.

capital gains

Exchange traded fund:

cheaper than index fund and can trade throughout the day

Compound interest can be summarized as interest on top of

interest

____ is best form long term goals

investing

____ means there's a chance you can lose your money.

investing

_____ is more risky, but offers opportunity to make more money.

investing

Passive Investing

less fees, index

Index Fund

less money, only trade one time a day

Out of Network ATM Fees

make sure the atm is associated with your bank

403 (b)

offered by employer. Just like a 401 (k) but for non-profit organizations.

Mutual Fund

professionally managed, costs money

____ is considered a secure way to store money

saving

_____ is best for short term goals

saving

Retirement

the action or fact of leaving one's job and ceasing to work (age 65)

Maintenance fee

to pay the fee to keep the account

How much does the FDIC insure?

up to $250,000

When should you save?

when you need access to your money for 3-5 years.

Active Investing

you have a dedicated portfolio manager managing, more money.