Personal Finance

Gross income

Income+tax+deductions

Net income

income-tax-deductions

W2 —- federal income tax

withheld

W2—- state income tax

withheld if applicable

W2—- local tax

withheld if applicable

W2—- social security

6.2% withheld

W2—- medicare

1.45% withheld

W2—- insurance premium

optional deduction

W2—- 40k contribution

optional deducation

W2—- union dues

optional deduction

W2—- FSA

optional deduction

1099—- Fed income tax

pay yourself

1099—- state income tax

must pay together

1099—- local tax

pay yourself

1099—- social security

12.4% paid for you

1099—- medicare

2.9% + .9% if high income

1099—- insurance premium

pay youself

1099—- 401k contribution

use IRA and SEP IRA

1099—- union dues

usually not applicable

1099—- FSA

not available

filing status

used to determine filing requirements, standard deductions, eligibility for certain credit, correct tax— status determined in the last day of the year Dec. 31st.

-single

-married filing jointly

-married filing separately

-head of household

-qualifying surviving spouse

W2— standard deduction

available

W2—- charitable donation

if itemizing

W2—- IRA contribution

yes (limits apply)

W2— student loan intrest

if eligible

W2—- self employed expense

not allowed

W2—- Health insurance

usually through employee

W2—- home office deduction

not allowed

1099—- standard deduction

available

1099—- charitable donations

if itemizing

1099—- IRA contribution

yes

1099—- student loan interest

if eligible

1099— self employed expense

business related expense are deducted

1099—- health insurance

deduction if self employed

1099— home office deduction

if regularly for business

SSN—- Social Secuirty Number

tracking the earnings history of U.S. workers for use in determining social security benefits entitlement and computing benefit levels

ITIN— individual taxpayer identification number

9 digit number issued by IRS for people filing tax returns who aren’t U.S. citizens and aren’t eligible for SSN

Form 1040

-U.S. ind. inc. tax return

-who? everyone who files fed income tax

-main form you fill out each year to report income

aka: your final tax report card to IRS

W2 form

-wage and tax statement

-who? employees

-sent to you by employers. shows total wages, tips, and how much tax withheld

aka: paycheck info summary for tax filing

W4 form

-employee’s withholding certificate

-employees when starting job/ updating tax withholding

-tells employer how much federal income tax to withhold from paycheck based on personal situation (like dependent)

-tool to adjust take home pay vs. tax owed

1099 form

-misc income

-non employee income freelance work gig jobs

-you worked yourself income report

direct deposit

electronically transferred-= directly from employer to employee

payroll card

reloadable prepaid card where wages reloaded each payday

paycheck (paper check)

physical paper check that you deposit/wage yourself to access your wage

earned income

income you worked for

-subject to income tax

-subject to S.S. and medicare (FICA) taxes

-can be used for 401k

unearned income

without working for it

-usually taxed depend on type

-not subject to payroll tax (SS and medicare)

-cannot contribute to retirement

zero based budgeting

you assign every dollar of income to expenses, saving/debt until budget equals zero

50/30/20

50%= needs

30%= wants

20%=savings

envelope system

use cash in each envelope for each category

pay yourself first

before budgeting expenses, set aside fixed amount for each saving/ investing then use remaining money for monthly expenses

line item budgeting

in spreadsheet/list all expected expenses and compare to actual spending

discretionary purchase

something you choose to spend- not a “need”

non discretionary purchase

something you must pay to meet living

short term pros and cons of renting a house

PROs

-lower upfront cost

-no property tax/ maintenance bills

-flexibility to move easily

CONs

-no equity built

-rent increase yearly

-limited control over spaces

short term and long term for buying home

PROs

-build equity if home value increases

-stability-fixed mortgage, no rent hikes

-can personalize your home

CONs

-high upfront cost

-responsible for maintenance and repair

-less flexibility

long term pros and cons

PROs

-less financial responsibility for repairs

-can shift housing based on life changes

CONs

-no return on monthly rent

-may face ongoing rent increase

-uncertainty if lanlord sells property

long term pros and cons on buying a home

PROs

-build long term equity

-possible tax benefits (mort. rate, property, tax)

-may appreciate in value

CONS

-risk of losing value if market goes down

-ongoing cost (tax, ins)

-harder to move quickly

physical bank

-for profit business owned by shareholders

-protected by FDIC

-insurance coverage is up to 250k per depositor per bank

-interest rate on saving generally lower

-interest rate on loan usually higher

-often higher fees (monthly maintenance, overdraft fees)

-full range; checking, loans, online tools, investment

-less personalized due to large size

-open to everyone

-often more advanced

credit union

-non profit institution owned by members (customers)

-protected by NCUA (national credit union admin)

-insurance coverage up to 250k per depositor per credit union

-generally higher interest rate on saving

-loan interest rate usually lower (esp. on auto and personal loans)

-fees typically lower or none

-similar services fewer tech or investment options

-more personal and community focused

-membership criteria

-technology varies

Physical bank

Benefit

-in person service and support

-access to ATM and branches

-full service, loans, CDs, credit

-FDIC insured (up to 250k)

Risk/limit

-limited hours/need to visit a branch

-may have a lower saving interest rate

-can have more paperwork and lower tech

-may change more fees than virtual banks

common fees

-monthly, overdraft, ATM

-minimumbalance fees

-paperstatement fees

virtual bank

benefit

-open 24/7

-higher interest rate on savings

-low/no monthly fees

-FDIC insured

Risk/ limitation

-no in person support

-tech comfortable

-may take longer for cash deposits

-can’t easily get cashier's check/large cash

common fees

-fewer fees

-out of network atm

-overdraft

non-financial institution (pay lender, check cashing)

Benefit

-no bank account/credit needed

-fast access to cash

-open extended hours

-easy to use without bank account

risk/ limitation

-extremely high int. rate (often 300%+)

-debt traps; hard to escape repayment cycle

-not insured

-not regulated like banks and credit union

common fees

-loan origination fees

-check cashing

-late fees, roll over fees

-hidden/ misleading fees

Roth IRA

Roth IRA (Individual Retirement Account) is a retirement savings account that offers tax-free growth and tax-free withdrawals in retirement, as long as certain rules are followed. It’s designed for individuals who expect to be in a higher tax bracket in the future, so they can pay taxes now and avoid them later

Traditional IRA

Traditional IRA (Individual Retirement Account) is a tax-advantaged retirement savings account that allows you to contribute pre-tax or after-tax income, depending on your circumstances, and defer taxes on the account’s growth until retirement.

risk

refers to the chance that an investment's actual return will differ from what is expected (including the possibility of losing money)

return

profit or loss from an investment, usually expressed as a percentage

risk tolerance

Determines what level of risk is appropriate for you personally

risk pyramid

Helps visualize which investments are safer vs. more speculative

diversification

A key strategy to manage and reduce risk without necessarily lowering your overall return

stocks

ownership in a company, you profit from share price growth/dividend

risk level high, liquidity high, return high

corporate bonds

loans to companies; you earn interest

risk level medium, liquidity medium-high, return moderate

government bonds

loans to government U.S. treasury bonds

risk level low, high liquidity, low-moderate return

mutual funds

pooled money invested in a portfolio of assets by a professional manger

risk level varies, liquidity medium, returns vary

Exchange traded funds

like mutual funds, but traded like stocks on an exchange

risk level varies, high liquidity, returns varies

real estate

investing in property (residential, commercial, land)

risk level, medium-high, low liquidity, moderate-high returns

commodities

physical goods like gold, oil, wheat

risk level high, medium liquidity, high returns

digital currency

decentralized digital asset

risk level high, high liquidity, high returns

collectibles

Art, coins, rare, value based on demand

high risk, low liquidity, unpredictable return

royalties

income from patent

rule of 72

for how long it will take for the investment to double 72/ annual rate of return

installment loan

loan you repay over time with fixed payments (installments) on a set schedule, such as monthly.

Revolving Loan

gives you access to a credit limit that you can use, repay, and reuse as needed—like a credit card.

federal student loan

- Lower fixed interest rates - Flexible repayment (income-based) - May qualify for forgiveness

- Limited to education expenses - Still leads to long-term debt

private student loan

- Can borrow more if federal aid is insufficient

- Higher interest rates - Fewer repayment options - Requires credit

bank

- Trusted, regulated lenders - Variety of loan types

- Strict approval criteria - May charge origination or application fees

credit union

- Lower interest rates - More flexible terms - Nonprofit member focus

- Must be a member - Fewer branches or digital tools

buy now pay later

- Easy approval - No interest if paid on time

- Late fees can add up - Can encourage overspending - Not credit-building

advanced payroll loans

- Fast access to cash from your paycheck

- Can create a cycle of dependency - May reduce future paychecks significantly

payday loans

- Immediate cash for emergencies

- Extremely high interest (APR often > 300%) - Leads to debt traps

balloon loans

- Lower initial payments

- Large final payment due - Risk of default or refinancing issues

asset based lending

- Can borrow using property, vehicles, inventory, etc.

- Asset can be seized if you default - Valuation fees and risk of over-borrowing

excessive fees

- Applies to many loan types if not careful

- Hidden charges can increase total repayment - Often not disclosed clearly