Personal Finance Semester Review

Financial independence

A state where income is enough to cover living expenses without having to depend on active work to maintain current lifestyle

SMART goals

Specific, Measurable, Achievable, Realistic, and Time bound

saving vs investing

The process of setting aside money for future use (saving) versus allocating funds to assets with the expectation of generating a return (investing).

FDIC insured bank means…

a bank that is insured by the Federal Deposit Insurance Corporation, protecting depositors' funds up to a certain limit in case of bank failure.

Overdraft fees for checking accounts

charges incurred when withdrawals exceed the account balance, leading to negative balances.

overdraft protection for checking accounts

a service that allows transactions to be approved even if the account balance is insufficient, preventing overdraft fees.

ways to access money in a checking account

include writing checks, using debit cards, and transferring funds electronically.

How does a checking account work?

A checking account is a deposit account held at a financial institution that allows for withdrawals and deposits. It provides easy access to funds for everyday transactions.

Paycheck: Net pay vs. Gross pay

Net pay is the amount received after deductions such as taxes and benefits, while gross pay is the total earnings before any deductions.

Credit card vs. Debit card

A credit card allows borrowing up to a certain limit to make purchases, while a debit card draws directly from the user's checking account, limiting spending to available funds.

Direct deposit is what?

A method of electronically transferring funds into a bank account, typically used for payroll or government benefits.

Online savings vs certificates of deposits (CD) vs traditional savings

Online savings accounts typically offer higher interest rates and lower fees compared to traditional savings accounts, while certificates of deposit (CDs) lock funds for a fixed term at higher rates, with penalties for early withdrawal.

emergency funds

Savings set aside for unexpected expenses or financial emergencies. Recommended 3-6 months of bills to cover living expenses.

Endorsements on checks

A signature or stamp on the back of a check that authorizes its transfer to another party or allows it to be cashed.

What is a stock?

A stock represents ownership in a company, entitling the shareholder to a portion of the company's assets and earnings. Stocks can provide dividends and capital appreciation.

Common vs preferred stock

Common stock gives shareholders voting rights and potential dividends, while preferred stock typically offers fixed dividends and priority in asset distribution but no voting rights.

Pros/cons of the stock market

The pros of the stock market include potential for high returns, liquidity, and diversification, while the cons include market volatility, risk of loss, and the need for research and knowledge.

Investing risks

The potential financial losses associated with investing in various assets, including stocks, bonds, and real estate. These risks can arise from market fluctuations, economic changes, and company performance.

Bonds

Debt securities issued by corporations or governments that pay periodic interest and return the principal at maturity.

Mutual Funds

Investment vehicles that pool money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities, managed by professional fund managers.

What is the S&P 500 Index fund?

A market index that measures the stock performance of 500 large companies listed on stock exchanges in the United States, often used as a benchmark for investment performance.

Target Date Fund

A type of mutual fund that automatically adjusts its asset allocation based on a specified target date, typically retirement, becoming more conservative as the date approaches.

401K vs Roth IRA vs Traditional Roth

401(k) is an employer-sponsored retirement savings plan allowing employees to save pre-tax income, while a Roth IRA is an individual retirement account where contributions are made with after-tax dollars, allowing for tax-free withdrawals in retirement. Traditional IRA allows for tax-deductible contributions, but taxes are paid upon withdrawal.

Simple interest formula

The formula used to calculate simple interest is I = PRT, where I is the interest earned, P is the principal amount, R is the annual interest rate, and T is the time in years.

Compound interest formula

The formula used to calculate compound interest is A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, P is the principal amount, r is the annual interest rate, n is the number of times that interest is compounded per year, and t is the number of years.

Rule of 72

A formula used to estimate the number of years required to double the invested money at a fixed annual rate of return by dividing 72 by the annual interest rate.

How to improve credit score?

To improve your credit score, pay bills on time, reduce outstanding debt, keep credit utilization low, and regularly check your credit report for errors.

What impacts your credit score?

Factors that impact your credit score include payment history, amounts owed, length of credit history, types of credit used, and new credit inquiries.

How are loans determined?

Loans are determined based on factors such as credit score, income, debt-to-income ratio, loan type, and lender policies.

What impacts your interest rate on a loan?

Factors impacting your interest rate on a loan include credit score, loan term, loan amount, down payment, and current market rates.

W-2 form: when and where to submit?

The W-2 form is submitted to the IRS by employers at the end of the tax year, typically by January 31st, to report an employee's annual wages and taxes withheld.

W-4 form: when and where to submit?

The W-4 form is submitted by employees to their employer to determine the amount of federal income tax to withhold from their paychecks, typically when starting a new job or when personal circumstances change.

I-9 form: when and where to submit?

The I-9 form is submitted by employees to their employer to verify their identity and eligibility to work in the United States, typically at the time of hire.

1040 form: when and where to submit?

The 1040 form is submitted by individuals to the IRS to report their annual income and calculate their tax liability, typically by April 15th of each year.

1080 form: when and where to submit?

The 1080 form is not a standard tax form; it may refer to other specific documents depending on context, such as state tax forms or educational forms. Typically, forms related to taxes or reporting are submitted to the appropriate agency by specified deadlines.

Insurance premium vs deductible vs out-of-pocket expenses

Insurance premiums are regular payments made to maintain coverage, deductibles are the amount paid out-of-pocket before insurance kicks in, and out-of-pocket expenses are costs not covered by insurance that the insured must pay.

Health insurance: HMO vs PPO vs HDHP

Health insurance plans differ in structure and coverage options. HMO (Health Maintenance Organization) requires members to use a network of doctors, PPO (Preferred Provider Organization) offers more flexibility in choosing providers, and HDHP (High Deductible Health Plan) has higher deductibles with lower premiums, often paired with Health Savings Accounts.

What is FAFSA?

FAFSA (Free Application for Federal Student Aid) is a form that students fill out to apply for financial aid for college, including grants, loans, and work-study opportunities.

Student loan vs scholarship vs grant

Student loans are borrowed funds that must be repaid with interest, scholarships are financial awards that do not need to be repaid and are often based on merit or need, and grants are funds provided by the government or institutions that do not require repayment, typically based on financial need.

50/20/30 budgeting idea

a budgeting method that allocates 50% of income to needs, 20% to savings and debt repayment, and 30% to wants. This approach helps individuals manage their finances effectively.

Deficit vs Surplus

Deficit refers to the situation where expenses exceed revenue, leading to a shortfall, while surplus occurs when revenue exceeds expenses, resulting in extra funds.

Zero based budgeting

A budgeting method where all income is allocated to expenses, savings, or debt repayment, ensuring that every dollar is accounted for and the budget balances to zero.