Study Guide for Final Exam
Whats the yellow for?
Is that what I have to do?
No seI think you should do the rest of the assignment
FINANCIAL DECISIONS:
How can you improve your financial well- Create a budget, set goals, create a
being? savings
Difference between opportunity cost and
trade off
Best chance of accomplishing goals
Values, goals, needs, and wants Values- something that is desirable,
worthwhile, and important
Goals- the end result of something a
person intends to acquire, achieve, do,
reach, or accomplish
Needs- something required for life
Wants- something unnecessary but
desired
Short term goal, long term goal
Elements of a SMART goal S- specific
M- measurable
A- attainable
R- reasonable
T- time
Financial planning definition On-going process
It's a process used to achieve financial
success based on financial goals
Financial success tips: spend less than you
earn
CAREERS, EDUCATION, AND INCOME:
Relationship between education, income, and
employment
Calculate paycheck amounts
Gross income vs. net income Employees receive their gross pay, which is
the amount they earn before any deductions
such as taxes, benefits, and other payroll
deductions are taken out. The net pay, or
take-home pay, is the amount that remains
after all these withholdings have been
accounted for.
Medicare-who does it benefit? People who are 65 or older.
Purpose of income taxes: funds public goods
and assistance programs for needy
Dependent A dependant is a person who relies on
another as a primary source of income. A
common-law spouse who is financially
supported by their partner may also be
included in this definition.
Inflation Inflation is the rate of increase in prices over
a given period of time.
Examples of human capital Transferable skills
- Creativity
- Organization
- Cooperation
- Listening
PLAN AND MANAGE MONEY:
First step to making a budget/spending plan Set a financial goal
Emergency savings While the size of your emergency fund will
vary depending on your lifestyle, monthly
costs, income, and dependents, the rule of
thumb is to put away at least three to six
months' worth of expenses.
Pay yourself first set aside money for savings before paying
bills and making other purchases
Fixed (contractual) and variable expenses Fixed expenses are costs that largely remain
examples constant, such as your monthly rent or
mortgage. Variable expenses, on the other
hand, are costs that may vary or be
unpredictable, such as a car repair or a
medical bill.
Minimum amount of money set aside to save three to six months' worth of basic living
for emergencies (three times monthly expenses. That's only the essentials: rent or
expenses) mortgage payments, bills, basic groceries,
child care and the like.
How to increase your net worth Update Your Budget. If you already have a
budget – and hopefully you do – analyze and
update it. ...
Boost Your Savings. ...
Pay Off Debt. ...
Increase Your Retirement Contributions. ...
Invest in Yourself. ...
Assets- Liabilities= Net Worth Your net worth is your assets minus your
liabilities. It's what you have left over after you
pay all your liabilities. Net worth is a better
measure of someone's financial stability than
income alone.
Income statements– what to do with a net With net gain it is good to put money towards
gain your; debts and savings, and after that get
some of your wants
Depository institutions- products and services These banks offer a range of services to
consumers and businesses such as savings
accounts, consumer and commercial loans,
credit cards, and investment products. These
institutions accept deposits and primarily use
the deposits to offer mortgage loans,
commercial loans, and real estate loans.
FDIC account coverage The standard deposit insurance coverage
limit is $250,000 per depositor, per FDIC-
insured bank, per ownership category
Savings tools and liquidity: What is a checking account?
- Checking account
- Savings account It is an account that provides an easy method
- Money market account for withdrawing and depositing money.
- Certificate of deposit
- Savings bond Interest:
- Most do not, but if it is offered rates
are low
Liquidity:
A checking account is the most liquid account
Features:
- It reduces the need to carry a large
amount of cash in your pocket
- Different types of checking accounts
are available but some include fees
- Checking accounts are also known as a
share draft account at a credit union
- This isn't recommended as the only
account used to save money
What is a savings account?
It is an account designed to hold money that
you aren't planning on spending soon.
Interest:
- Earns interest
- Rates are often low
Liquidity:
More liquid than other saving tools except for
checking accounts
Features:
- It is very effective for storing
emergency funds
- It may require a minimum balance or
it may have a limited number of
withdrawal each month
- Savings accounts are also known as a
share account at a credit union
What is a money market deposit account?
It is an account that usually has a minimum
balance requirement and tiered interest rates
Interest:
Often tiered interest rates
- The amount of interest earned depends
on the amount of your balance
Liquidity:
Less liquid then the checking and savings
accounts because of the minimum balance that
is required and the transaction limits.
Features:
- You would usually have to deposit a
minimum amount to open this account.
It would typically be $1,000.
- It is similar to a savings account but it
earns a higher interest rate and has a
higher minimum balance or deposit
requirement.
What is a savings account?
It is an account that is used for a fixed period
of time and it has restricted access to the
funds.
Interest:
- The interest varies depending on time
and amount of money being deposited
Liquidity:
Least liquid saving tool
Features:
- Deposits must be held for a certain
length of time. Which usually is 7 days
to 10 years.
- Deposits can range from $100 to
$250,000
- If funds are being held for the
designated time period then there is a
limited risk and no fees
Security level of savings tools Savings accounts, insured money market
accounts, and CDs are viewed as very safe
because they are federally insured. You can
easily get the money in savings if you need it
for any reason. But there's a tradeoff for
security and ready availability
Characteristics of e-banking It indicates items on the predictor variable (E-
banking service quality). The dimensions
include perceived innovation, technology
competence; perceived security risk,
convenience, reliability, and tangibility.
MANAGE CREDIT AND DEBT:
Borrowing- short term and lower interest rates As interest rates move up, the cost of
result in least debt borrowing becomes more expensive. This
means that demand for lower-yield bonds will
drop, causing their price to drop. As interest
rates fall, it becomes easier to borrow money,
and many companies will issue new bonds to
finance expansion.
How to build a positive credit history pay your debts on time and in full whenever
possible.
Secured credit card
Co-signer A co-signer is a person – such as a parent,
family member, or a friend – who adds their
information, including income and credit
record, to the loan application and pledges to
pay back the loan if you're unable to.
Open-end credit (credit cards) Open-end credit is the idea that you get to
withdraw funds up until a certain limit and as
you repay it back, the funds are available to
you again
Closed-end credit (contracts): examples and
characteristics
Results of paying a minimum payment on
credit card
Significance of a low credit score
Benefits of using credit wisely
Avoid interest on credit cards
Difference between debit cards and credit
cards
Availability of free credit reports
How to decrease fraudulent use of credit
cards
Credit card liability when card is lost or stolen,
Identify theft-next step
Upside down on a loan
MANAGE RISKS (INSURANCE) AND PRESERVE WEALTH:
Benefits of insurance
Calculate deductibles and co-insurance
percentages
Renter requirements
Security deposit
Lease
Renter’s insurance
Maximum amount to pay for a home (2.5 x
salary)
Value of home- mortgage debt= Equity
Amenities (may be included in rent)- Ex.
Internet
Tips for car buying
The base price of a car- standard equipment,
no extras
Auto insurance required to drive
Factors that affect car insurance rates
When to purchase life insurance
CREATE AND BUILD WEALTH (INVESTING):
Investing- long term and high interest rates
result in most money earned
Diversified portfolio
Relationship between risk and return
