W!se Personal Finance Review
Terms in this set (52)
Cut your taxes by subtracting a set amount from your taxable income. You are allowed a personal exemption for yourself, your spouse if married filing jointly, and each person you can claim as a dependent. For 2017, the exemption amount is $3,900.
The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. It is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.
substitute for currency, which cannot be used as a legal tender and are often a form of prepayment at a particular business or a store.
A money order
is a payment order for a pre-specified amount of money. As it is required that the funds be prepaid for the amount shown on it, it is a more trusted method of payment than a check. .
Discretionary income or budget surplus
The amount of an individual's income that is left for spending, investing or saving after taxes and personal necessities (such as food, shelter, and clothing) have been paid. includes money spent on luxury items, vacations and non-essential goods and services.
Why US currency has value
Confidence in the economy
Who is the most hurt and the least hurt with inflation?
The least likely to be hurt by unanticipated inflation are the people who owe debts. Since inflation is the increase of prices of good and services in general, the money owed by people will have increased value while money borrowed will have less. The same amount of money has less purchasing power thus somebody who gets paid will have less value.
Role of the US Treasury Dept.
Created in 1798, the United States Department of the Treasury is the government (Cabinet) department responsible for issuing all Treasury bonds, notes and bills. Some of the government branches operating under the U.S. Treasury umbrella include the IRS, U.S. Mint, Bureau of the Public Debt, and the Alcohol and Tobacco Tax Bureau.
Pay yourself first
A phrase commonly used in personal finance and retirement planning literature that means to automatically route your specified savings contribution from each paycheck at the time it is received.
A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are generally issued by commercial banks and are insured by the FDIC. The term of a CD generally ranges from one month to five years.
credit union and the advantage of using a credit union
Member-owned financial co-operative. These institutions are created and operated by its members and profits are shared among-st the owners.
Overdraft protection (opt in regulation) and how it works
A line of credit that banks offer to their customers to cover their overdrafts. It kicks in when a customer writes a check for more than the amount in their account.
The ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.
Time value of money
The idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received.
Rule of 72
A rule stating that in order to find the number of years required to double your money at a given interest rate, you divide the compound return into 72. The result is the approximate number of years that it will take for your investment to double.
Reconciling a Checking account-- why and when
It simply means matching your personal checking account records with those of your bank. Because it is easy to overlook a transaction or two, even if you are diligent about watching your money, keeping a regular reconciliation schedule can help prevent bounced checks and other types of overdrafts.
Tax anticipation loans
A Refund Anticipation Loan (RAL) is a loan that is offered by many tax preparation companies to people against their income tax return.
Credit card cash advances
A cash advance is a cash loan from a credit card, using an ATM, a bank withdrawal or "convenience" checks. Credit card cash advances have many disadvantages for consumers. Generally, you cannot take a cash advance for the full amount of your available credit. The interest rate on cash advances is often significantly higher than it is on purchases or balance transfer
Truth in Lending Act
federal law designed to promote the informed use of consumer credit, by requiring disclosures about its terms and cost to standardize the manner in which costs associated with borrowing are calculated and disclosed.
Consequence of paying the minimum payment due on a credit card bill or paying a bill late
Not only will you never pay off your bill, but the interest rates that credit card companies charge will actually keep your bill growing every month
How does the degree of risk influence the interest rate charged for credit
The higher the risk the greater the interest rate.
Debt to Credit Ratio
DTI ratio no higher than 40 percent in order to qualify for a mortgage.
A credit report contains information about your credit - and some bill repayment history - and the status of your credit accounts. This information includes how often you make your payments on time, how much credit you have, how much credit you have available, how much credit you are using, and whether a debt or bill collector is collecting on money you owe.
Three leading credit reporting agencies
(Equifax, TransUnion, Experian)
Consequence of a lost or stolen credit card
Identity theft, theft,
The length of debt repayment and impact on cost
The longer the loan the more money it will cost you.
Characteristics of predatory loans
Unscrupulous actions carried out by a lender to entice, induce and/or assist a borrower in taking a mortgage that carries high fees, a high interest rate, strips the borrower of equity, or places the borrower in a lower credit rated loan to the benefit of the lender. As with most things of a dishonest nature, new and different predatory lending schemes frequently arise.
Collateral (secured vs. unsecured loans)
Property or other assets that a borrower offers a lender to secure a loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup its losses. Because collateral offers some security to the lender in case the borrower fails to pay back the loan, loans that are secured by collateral typically have lower interest rates than unsecured loans. A lender's claim to a borrower's collateral is called a lien.
is an individual or business (pawnshop or pawn shop) that offers secured loans to people, with items of personal property used as collateral. The word pawn is derived from the Latin pignus, for pledge, and the items having been pawned to the broker are themselves called pledges or pawns, or simply the collateral.
How insurance works--Concept of sharing risk
Risk management method in which the cost of the consequences of a risk is distributed among several participants in an enterprise
Insurance deductible - What happens to the premium when the deductible is raised or lowered
In an insurance policy, the deductible is the amount of expenses that must be paid out of pocket before an insurer will pay any expenses. Example: if you have a $5000 deductible per year and you happen to spend $6000 this year, you will get your reimbursement for $1000 this year. In general usage, the term deductible may be used to describe one of several types of clauses (see below) that are used by insurance companies as a threshold for policy payments.
Collision coverage/when do consumers normally terminate this coverage
Many people with newer cars keep collision coverage on their policies, but they also may not know when or if they should drop this coverage. When the value of the car is less than the coverage amount
Term life insurance or term assurance
is life insurance which provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires, coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments or conditions. If the life insured dies during the term, the death benefit will be paid to the beneficiary.
Whole life insurance, or whole of life assurance (in the Commonwealth of Nations),
is a life insurance policy that remains in force for the insured's whole life and requires (in most cases) premiums to be paid every year into the policy.
Copayment or Copay
A fixed fee you pay when you see a doctor, have a prescription filled, or are admitted to the hospital. Copays are generally lower for services from primary care doctors than for specialists. PPOs have copayments. HDHPs have no copayments; when you have medical and prescription costs, you pay them upfront and they apply to your deductible. Your copay amount generally appears on your health insurance ID card.
The landlord of your apartment has insurance, but it probably only covers the building where you live — not your belongings or your liability for accidents. If your possessions are stolen during a break-in or damaged by a fire or severe weather, a renters insurance policy can allow you to recover their value. If someone is injured during an accident in your home, renters insurance can help protect you in the case a liability lawsuit.
Disability Insurance, often called DI or disability income insurance
form of insurance that insures the beneficiary's earned income against the risk that a disability creates a barrier for a worker to complete the core functions of their work. For example the inability to maintain composure as with psychological disorders or an injury, illness or condition that causes physical impairment or incapacity to work. It encompasses paid sick leave, short-term disability benefits, and long-term disability benefits
What is a bull market (remember u in bull ---market goes UP) vs. a bear market
A financial market of a group of securities in which prices are rising or are expected to rise. The term "bull market" is most often used to refer to the stock market, but can be applied to anything that is traded, such as bonds, currencies and commodities.
A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment to be self-sustaining. As investors anticipate losses in a bear market and selling continues, pessimism only grows. Although figures can vary, for many, a downturn of 20\% or more in multiple broad market indexes, such as the Dow Jones Industrial Average (DJIA) or Standard & Poor's 500 Index (S&P 500), over at least a two-month period, is considered an entry into a bear market.
Bonds -purpose; how they work; interest feature; tax free feature of Municipal Bonds
A debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities.
A mutual fund
is nothing more than a collection of stocks and/or bonds. You can think of a mutual fund as a company that brings together a group of people and invests their money in stocks, bonds, and other securities. Each investor owns shares, which represent a portion of the holdings of the fund.
Portfolio Investment' Portfolio investments
can span a wide range of asset classes - stocks, government bonds, corporate bonds, Treasury bills, real estate investment trusts, exchange-traded funds, mutual funds, certificates of deposit and so on.
A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.
A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders. The dividend is most often quoted in terms of the dollar amount each share receives (dividends per share). It can also be quoted in terms of a percent of the current market price, referred to as dividend yield.
A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly have maturities of one month (four weeks), three months (13 weeks) or six months (26 weeks).
A qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on a post-tax and/or pretax basis. Employers offering a 401(k) plan may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.
Traditional Individual Retirement Accounts (Traditional IRA)
An individual retirement account (IRA) that allows individuals to direct pretax income, up to specific annual limits, toward investments that can grow tax-deferred (no capital gains or dividend income is taxed). Individual taxpayers are allowed to contribute 100% of compensation up to a specified maximum dollar amount to their Traditional IRA. Contributions to the Traditional IRA may be tax-deductible depending on the taxpayer's income, tax-filing status and other factors.
is a sustained increase in the general price level of goods and services in an economy over a period of time
sustained decrease in the general price of goods and services.
Role of the SEC;
has a three-part mission:
Maintain fair, orderly, and efficient markets
Facilitate capital formation
The Federal Reserve System (also known as the Federal Reserve, and informally as the Fed)
is the central banking system of the United States.
Federal Deposit Insurance Corporation (FDIC)
is an independent agency created by the U.S. Congress to maintain stability and public confidence in the banking industry.