UGBA 196

max credit card fee unless one of your last six payments was late?

$25, then $35

max overdraft fee on credit card

$39

Discipline 1

- Never borrow money to buy stocks - do not market timing - invest in stocks with money you will not need for five years - identify trends - dollar-cost averaging - diversify - stage and stagger your purchases - allocation of assets or rebalancing - estimate 6-18 months out - do your homework: spend 1 hour/week on each stock - keep it simple and stay informed: if you don't understand an investment, don't buy it

credit card

- an unsecured line of credit based on your good faith and credit history - lender can access your credit reports

Bad debt

- borrowing money to support a lifestyle beyond one's means - shopping to feel good on a bad day - borrowing more than you can repay - shopping to kill time - keeping up with, or ahead of, your peers

for all three types of investors:

- don't worry about small day-to-day changes in price - look ahead 6-18 months to project a trend/spot what might affect dividend

Good Debt

- education - car - mortgage - starting a well thought out business

Part A of Medicare

- free to seniors - financed by 2.9% payroll tax on all earned income with no salary cap (half and half employer/employee)

Stock Grants/RSUs

- gifts of stock: may be free or offered at bargain - qualified by length of service, meeting milestones - granted shares may or may not be vested: - you've met all of qualifications - shares transferred in your name - if they are vested, fully yours: if you quit, you take them with you

itemized deductions include

- large, uninsured medical expenses over 10% of income - State and local taxes up to $10,000 - home mortgage interest on first $750,000 - charitable deduction up to 60% of gross income - interest on home equity loan if reinvested to home

Value investor

- look for stocks at bargain prices - broken stocks, not broken companies - research why stock is down, why it will go back up

dividend investor

- looking for income - reliable dividend - in down markets, stocks with good dividends tend to hold their value better

installment debt

- money that is borrowed to purchase large items such as a car or furniture paid for over time - borrow purchases the item and pays for it at regular intervals until the loan is paid back in full

pass through deduction

- new 20% tax deduction of business income: small business and large hotel chains - unless you earn over certain amount of income - intended for people who make things: not consultants, accountants, lawyers)

SS facts

- no means test - pay as you go plan

Part D of Medicare

- optional and means tested - financed by monthly premiums and taxes

Part B of Medicare

- optional and means tested - monthly premiums

why do lenders like credit cards?

- over 50% do not pay off their balances each month - average household has over $9000 in credit card debt - college undergrads had over $3000 avg debt

how to improve your FICO score

- pay at least minimum balance due on time and over time - avoid late payment - manage debt/credit ratio - preserve history - do not apply for a lot of additional credit at once

Go-To Rate

- rate you are charged on unpaid credit card balances in addition to the variable rate to determine total rate - based on your credit history

FICO formula

- record of paying bills on time over time: 35% - debt-to-credit ratio: 30% - length of credit history: 15% - new accounts and recent applications for credit: 10% - mix of credit cards and loans: 10%

stock options

- the right to purchase shares at a fixed price in the future - used to attract and reward employees - free

growth investor

- want stock price appreciation - grow earnings 15% a year - co has competitive edge

Contribution rate to social security

12.4% of all earned income: 6.2% by employer and 6.2% by employee on first $128,400 of earned income. salary cap gone up every year because of cost of living.

how much should you save of earned income?

15%

balance transfer fee

2 to 5% charged by new lender if you transfer to new credit card provider

minimum payment required each month to avoid a penalty?

2.5-3% of outstanding balance

inheritance tax

20 states have it. paid by heirs (aka after distribution)

max amount of portfolio in any single stock

20%

grace period

21 day period in which penalties and fees cannot be charged. 21 days starting when statement is mailed

corporate tax rate

21%

percentage of credit reports with serious errors

25%

activation fees, annual fees cannot exceed what amount in first year

25% of the credit limit. after first year, no limit.

emergency fund

3-6 months of expenses ready

how much notice do customers get before their account is closed?

30 days

Toxic - Worst - Bad FICO Score

300 - 619

max federal income tax rate

37% of taxable income

eligibility requirements for social security benefits

40 quarters of employment (10 years) earning at least $1,320 per quarter. at 66 years, can receive full benefits regardless of income

estate tax

40% rate on estate that is over 11.2m. 11.2m each if married.

percentage of federal govt spending for senior entitlements

42%

max amount of money to put into stock from a tip?

5%

speculating should be limited to...

5% of your portfolio

promotional rate periods minimum

6 months

Subprime FICO score

620 - 660

OK FICO score

661 - 719

Good FICO score

720 - 779

Best FICO score

780 - 850

what is a notary public

A public official authorized to attest to the authenticity of signatures.

investment grade bond

AAA through BBB- safety of principal and secure fixed income

1 out of every 6

Americans receive a Social Security check each month

speculative grade bonds

BB+ or lower higher rate of interest and default from companies, emerging markets

decision to pay dividends?

Board of Directors

W-4 Form

Employee's Withholding Allowance Certificate that shows the employer how much tax to withhold from an employee's check

Rule of Fred

I get paid first

IRS communication

ONLY thru snail mail. the IRS does not call or email.

PEG ratio

P/E Ratio / growth rate

stop payment

Requesting the bank to reject payment of a check when presented

dow jones

The average price of 30 selected industrial stocks, used as a measure of general market trends

three reporting agencies

Transunion, Equifax, Experian

if bond was purchased at a discount

YTM higher than coupon

if bond was purchased at a premium

YTM lower than coupon

default rate

accelerated rate of interest of 28-35% charged on credit balance as penalty for not paying minimum payment or check bounced

fees on prepaid cards (5)

activation fees, inactivity fees, fees to load money, fees to check balance, to use an ATM

marriage tax penalty

additional taxes if combined income exceeds $400,000

bond premium

amount above face value the bond is valued at in the marketplace

bond discount

amount below face value the bond is valued at in the marketplace

credit

amount of money a lender is willing to lend subject to repayment terms such as interest, fees, and penalties

principal

amount of money borrowed or loaned

15 trillion dollars

amount of student loan debt, which exceeds credit card debt

contribute the most you can to...

an employer sponsored retirement plan to get the biggest possible employer contribution. count it toward your 15% savings goal.

spending plan

analyze: where is money coming from and where is it going

current yield

annual interest payment divided by the market price of the bond

how many individual stocks does it take to diversify?

at least five stocks in five different industries

rebalance your portfolio...

at least once a year

voluntary requests

authorized by you so that a lender, landlord, employer (with written permission) can legally get a copy of your credit report

why is it hard to pay back debts?

because you first must pay taxes on income, then pay back + interest. can't make $1000 to pay $1000

when is estate tax paid?

before distribution

cornerstone of wealth?

being frugal, not cheap but value oriented

when interest rates rise

bond prices fall

when interest rates fall

bond prices rise

PEG ratio less than 1

buy range: good time to buy stock bc it is growing faster than market is giving it credit for

capital losses

can be used to offset capital gains for tax purposes up to $3000 per year, excess can carry over to future years

gift tax

can give up to $15,000 to as many people free of gift tax. tuition/medical does not count as gift. max rate is 40%

bankruptcy

can negatively impact your credit score for up to 10 years. does not relieve you of obligations for taxes, alimony, child support, student loans.

itemized deduction vs standard deduction

can't do both! take whichever is highest.

what happens if you are late in making minimum credit card payment?

charged the interest default rate of 28-35%

cashier's check

check purchased by you from a bank, payable to a third party designated by you

equivalent yield of a muni bond

comparison between taxable interest vs nontaxable interest as it pertains to your tax bracket

two basic types of people:

consumers and savers

what do it if your identity is stolen

contact the 3 credit bureaus and put a "fraud alert" on your account. contact all creditors.

market value of bond

coupon payment/interest rate

Revolving credit

credit made available to you at any time, subject to the terms of repayment (credit cards)

interest on credit card calculated

daily, and only on balance left unpaid month to month

biggest reason for prenups?

death. 50% of marriages have them.

tax credits include

dependents, child, earned income for low earners

credit score

determined by credit report. NOT on credit report! to change your score, must change credit report

qualified dividend

dividend you receive from a stock you've owned for at least 61 days

qualities of millionaires

do not earn over $100,000/year. Over 50% are self-employed. Only about 10% are highly paid executives. 80% became millionaires in one generation.

ATMs and credit cards?

do not use credit cards in an ATM!

single most important factor in determining whether stock price will go up?

earnings and prospect of future earnings

contributions to Social Security

employer and the employee share equally in contributions to the program. employers' contributions are tax deductible, employee's are not.

info on credit report

employment history, lawsuits, judgments, arrests, DUIs, bankruptcies, all loans

deferred interest plan

enables consumer to purchase big-ticket items paying no interest or a low "teaser" rate of interest over a promotional period.

FDIC max insurance

ensures up to $250,000 per account

joint responsibility

everything you or your spouse accumulate during the marriage

market order to buy

expect to buy at the ask price

market order to sell

expect to sell at the bid price

tax deductions

expenses you can subtract from your taxable income to reduce your taxes

default

failure to meet the terms of a bond

bankruptcies handled in which court?

federal

budgeting

financial planning. enables you to manage your money instead of letting your money manage you

"millionaire"

financially independent, living the life they want to lead, and able to take care of themselves without financial help from government sources

initial public offering (IPO)

first time a corp sells stock to the public

to avoid a late payment fee if paying by mail

five days before the due date. must be received, not postmarked, by the due date

coupon yield

fixed percentage rate of interest based upon the par value of the bond

short term capital gain

for assets owned 0-12 months, taxed at ordinary tax rate with max of 37%

taxes on interest

for interest in unearned income, taxed at ordinary level

involuntary requests

from lenders trying to solicit you by mail for preapproved credit offer.

80% of households

have two people working

payday loan

high interest short term cash loan intended to be repaid by future paychecks

muni bonds better for...

high tax brackets, because federal tax free

good dividend

higher than interest on a US treasury note

35%

highest default rate he has seen

"bid"

highest price a buyer is willing to pay at that moment

what is a hold on your credit card?

hotels will put a hold on your credit card for much more than cost of room and release it after you check out. cannot create overdraft charge unless executed.

what is on credit card statement

how many months it will take to pay your balance if you only pay the minimum, and how much you will pay in principal and interest over that time. also how much you need to pay to pay off the entire balance in 36 months.

yield to maturity

how much you will receive in the future if you hold the bond to maturity. sum of all cash flows from both coupon payments and repayments of the face value

defaulting on credit card

if you are more than 60 days late in paying minimum, interest goes to default rate of 28-35%

Wash Sale

if you buy back shares you just sold, cannot take a tax loss

credit report

individual financial report card which tells you whether you have been making your credit card/loan payments on time and includes personal info

what can you keep separate in a marriage?

inheritance and gifts, as long as you don't comingle them

muni bonds

interest is free from federal income tax

for an account in good standing

interest rate increases can only be applied to new charges

variable rate of interest

interest rate that moves up and down based upon benchmark interest rate NOT controlled by the lender

during high inflation

interest rates rise, so price of preexisting bonds go down, and should buy

corporate bonds

interest taxed as ordinary income

dollar-cost averaging

investing a set amount of money in shares of a stock on a regular time schedule, regardless of the price of the shares at that time: mathematically will buy more shares at lower prices

most important thing to think about in evaluating business

is management doing a good job?

burden of saving and investing for retirement and health care

is shifting from employer to employee

charge card

issued by a retailer allowing you to charge purchases made only with their store

sell a stock if...

it declines by a preset percentage

itemized deductions

itemize expenses on Form 1040 to deduct before calculating taxable income

"last"

last price a stock was bought and sold. can change in a nanosecond.

accessing credit reports

legally entitled to one free copy of your report each year from each of the three major bureaus

what is wealth?

lifestyle!

frugality

live within your means

Bonds

loan that must be repaid after issuance, trade in the open market above/below face value based on interest rates/changes in risk

adjustable rate of interest

loan where rate of interest of interest changed at various specified times

"ask"

lowest price a seller is willing to sell for at that moment

to avoid a late payment fee if paying online

make it two days before the due date

when making an overpayment

make sure it is applied to the principal, NOT interest or future payments. use it to reduce amount of loan.

S&P 500

market index of U.S. equities based on the performance of 500 large-cap stocks representing various sectors of the overall equities market

qualified stock dividends tax rate

max rate of 21%

does cancelling an inactive credit card raise or lower your credit score

may increase your debt-to-credit ratio, which might lower FICO score. preserve history and do not cancel older cards.

late payment fee cannot exceed...

minimum payment

3 major ratings agencies

moody's, fitch, standard & poor's

corporations

most large enterprises. chartered by the state or country, subject to laws where chartered. raise money by selling shares of stock

what is biggest tax burden?

most people pay more in Social Security and Medicare taxes than federal income taxes

interest rate change

must be notified 45 days in advance

payments in excess of the minimum...

must first be applied to the balance with the highest interest rate

can credit card companies charge inactivity fees?

no

standard deduction

no questions asked flat deduction: 12,000 for single, 24,000 for married

introductory rate

no rate increase for first 12 months of opening a new card, unless intro rate has ended

do debit cards help establish good credit?

no, because the bank is taking no risk

can you and your parents both claim you for the temporary tax credit?

no. you can only be claimed as a dependent on one return.

social security taxes on unearned income?

no: not on interest, dividends, capital gains.

are social security contributions tax deductible?

not for the employee

can credit issuers raise interest rates on prior charges?

not on basis of current changes in credit report/score

alimony taxes

now: person who pays it pays the taxes on it

prepaid card

offered by banks and nonbanks and not linked to a bank account.

limited liability corp (LLC)

one person owns all the stock. taxed like a partnership.

what does Card Act apply to?

only to consumer credit cards, NOT business credit cards.

dividends

optional. taxed twice: once at corporate level and again at shareholder level

if the stock decreases in price...

options have no value and are out of the money

if the stock increases in price...

options have value and are in the money

if not exercised by the expiration date...

options terminate

Sole Proprietorship

owned by own person with unlimited liability. dies when proprietor dies. ordinary tax rates.

partnership

owned by two or more people. survives death of partners. do NOT pay federal income taxes. each partner gets K-1 form for taxes of their proportional share of profits.

the bottom 50% of households

pay less than 3% of income taxes

47% of households

pay no income taxes

quarterly estimated taxes

pay taxes 4 times a year on income not subject to withholding

best FICO score methods

pay your bills on time over time, keep your debt-to-credit ratio near 30%, avoid DUIs

25%

percent of the population that is obese

focus on...

percentage gain or loss on a stock, not the dollar amount

42%

percentage of all the money the federal government currently budgets are for senior citizens

40%

percentage of children born out of wedlock

4.9%

percentage of households that have a net worth of at least $1 million

debtor

person who has obligation to repay the debt

taxes for child support

person who pays it can deduct, person who gets it must pay (opposite of new alimony)

certified check

personal check guaranteed by bank as being supported by funds in your account

open-end mutual fund

pooled investment portfolios open to any investor w the money .to make a min initial purchase. fund issues new shares to finance purchases based upon NAV. comes with a prospectus of policy, strategy, performance, etc. high fees.

closed-end funds

pooled investment portfolios which raise money by issuing shares in IPO. after, shares listed on exchange and publicly traded based on supply and demand, not NAV.

market cap

price per share * shares outstanding

credit quality

probability of default

mutual funds

professionally managed portfolios each with a strategy

fixed rate of interest

rate does not fluctuate during term of loan

nonqualified (ordinary) dividend

received from shares of stock you've owned for less than 61 days

bottom 10% of households

receives checks from the government

tax credits

reduce amount of tax owed

longevity

retirement is not the issue, it is longevity: do not outlive your money

yield

return earned by an investment in bonds

general partner

runs the business with unlimited liability

i get paid first implementation:

save 15% of your earned income.

debit card

secured bank card that takes money out of your bank account immediately

who needs to pay quarterly taxes?

self employed workers

if the reason you bought a stock no longer exists...

sell it

PEG ratio higher than 2

sell range: market is paying more than the rate of growth

6x

seniors take out 6x what they put into social security

Alternative Minimum Tax (AMT)

separate tax for high earners: must recalculate using atm and pay higher of the two. 26-28% designed to prevent high income people from using tax loopholes to pay no taxes.

limited partner

share in profits/losses. liability only up to their investment.

common stock

share of ownership in corp. limited liability. liquid and volatile.

P/E ratio

share price / (total earnings/shares outstanding) = share price / EPS = price investors paying for each dollar of earnings

Limit order

specific price you set at which you are willing to either buy or sell a stock

what is the deduction on federal returns for state and local taxes?

state and local taxes plus property text deductible up to $10,000

gift cards

stored value cards for specific retailer

treasury bonds

subject to federal income tax

adjusted gross income (AGI)

subtract from total income deductions such as retirement plans, educator expenses, student loan interest, tuition and fees, health savings accounts

what was social security designed to do?

supplement a person's own pension plan and lifetime savings.

tax credits or tax deductions have bigger impact?

tax credits have bigger impact and worth more

excise tax

tax on production or sale of good: luxury items and highway use, wagering, fuels, airline tickets

unearned income

taxable interest, ordinary and qualified dividends, business profits or losses, capital gains/losses

taxes for nonqualified (ordinary) dividends

taxed at ordinary tax, max 37%

market order

the best available price at that moment in time for an immediate purchase/sale of a stock

stock options are granted by...

the board of directors

interest

the cost of money. paid by borrower to obtain the principal or received by lender for providing capital.

debt

the state of owing money

who establishes community property laws?

the states

identity theft methods

theft of wallet, phishing, hacking

don't exercise stock option...

then wait to sell: could have huge tax burden then tax could tank

max interest rate on a credit card?

there is none!

FICO score

three digit number used by lenders to determine if you are a good or bad credit risk. different score from each of three bureaus

your goal in investing stocks is...

to earn an above average annual rate of return of 8-10%, including dividends, and to compound that rate of return over time

debt-to-credit ratio

total balance on your credit cards and other loans compared to your total credit limit. near 30% good

Earnings per Share

total earnings/shares outstanding = profit (or loss) attributable to each share of stock

Mutual funds net asset value

total market value of fund's holdings at close of market, divided by # shares outstanding

sector funds

track 50 ish stocks in specific industry or geography. also provide instant diversification, very low fees.

exchange traded funds

track an index such as Dow Jones/S&P. provide instant diversification. not actively managed: very low expenses.

taxes on stock options

turning options into shares is a taxable event, even if you don't sell the shares. ordinary income tax on difference between the exercise price and the market price

kiddie tax

unearned income of kids is taxed as ordinary income. designed to prevent parents from using kids as tax shield.

overdraft fees cannot be charged

unless you agree to accept them

the deduction on federal return for state and local taxes?

up to 10,000

fees for credit cards (7)

using another bank's ATM, 5% per transaction, foreign exchange of 3-5%, overdraft fees, late payment fees, balance transfer fees of 2-5%, account closing

total credit card rate

variable rate + go-to rate

earned income

wages, salary, bonuses, commissions, royalties, tips. max tax is 37%

$400,000+

what the top 1% of households earn, and pay 40% of income taxes

$113,000+

what the top 10% of households earn, and pay 70% of income taxes

$160,000+

what the top 5% of households earn, and pay 60% of income taxes

when is the best time to establish credit?

when you don't need it

what is credit card theft?

when your credit card is missing or stolen. contact issuer/bank immediately.

only federally mandated website for free credit reports

www.annualcreditreport.com

are medicare contributions tax deductible?

yes

are social security benefits taxable?

yes 85% of them

when you marry...

you do not take on the debt your partner amassed before you wed

limit order to sell

you set your lowest price

limit order to buy

you set your top price

long term capital gain

you've owned asset for more than 12 months. max is 20%

if you contact credit card issuer within two days of discovery of it missing

your loss is limited to $50