Personal Finance

Checking Account

A bank account where your money is easily accessible through debit card or check.

Savings Account

Bank account where your money is easily accessible and able to earn interest (.6%)

Certificate of Deposit (CD)

A deposit for a set amount of time at set %. Has a high interest rate (Around 4%).

50-20-30

50% of income should go into needs

20% goes into your savings plan (15% into investments, 5% into emergency fund)

30% goes into your wants

Rule of 72

Take 72 and divide by the interest rate - how many years until savings bond doubles

Money Market

A segment of the financial market for short-term borrowing and lending

Savings Bonds

Purchased at half its face value.

-Matures based upon interest rate

-Has to double in money

-Don’t have to cash in when it doubles

-Stops growing after 30 years.

Compound Interest

Earning interest on your initial deposit (principal) plus the interest that has already accumulated

Simple Interest

A straightforward way to calculate interest paid only on the initial principal amount of a loan or investment, without factoring in accumulated interest

FDIC/NCUA

Federal Deposit Insurance Corporation:Provides insurance guarantee up to $250,000 in deposits

National Credit Administration

Automatic Payment

An automatic payment that is set up to withdraw the entire remaining balance of a loan or credit line, thus fully settling the debt

Fico

Acronym of the highest company that provides software to calculate credit score.

Loan possibilities and interest rates are determined by this score

Credit Score

Scores range from 300-850. Scores above 620 are respectable. Checked with 3 reporting companies (Experian, TransUnion, and Equifax).

Bankruptcy

PERSONAL BANKRUPTCY:

Look for total costs of borrowing to avoid getting in trouble

Bankruptcy should be a LAST RESORT

Debtors give up most of what they have to pay off creditors

The remainder of the debt is eliminated

CONSEQUENCES OF BANKRUPTCY:

Recorded for 10 years

Difficult to get loans

Taxes must continue to be paid

Student Loans are not forgiven under bankruptcy

Credit Report

A detailed history of your borrowing and repayment behavior, compiled by credit bureaus from lenders and public records, showing loans, accounts, payment history, and public records like bankruptcies, used by lenders, landlords, and employers to assess your financial reliability for loans, housing, or jobs

Principal

The original amount of money borrowed from the lender

Interest

The fee or cost a borrower pays to a lender for the use of their money, typically calculated as a percentage

Secured Loan

Backed by collateral. The lending agency will take it if you don’t make payments. Ex. House

Unsecured Loan

Not backed by collateral. Rely on your creditworthiness and promise to repay, often called a signature loan. Ex. Credit card company

What are the 4 C’s of Credit?

Capacity to pay, Character, Capital, and Collateral

Collateral

Hold something in exchange for payment

Capital

Assets used to generate wealth

Capacity

Debt to Income ratio

Character

Your credit score

Installment Charge Account

Spread payments out equally. For major items.

Revolving Charge Account:

Store Account. Has continuous charges/payments. You pay interest on what is not paid at the month’s end.

Mortgage

A loan on a house

Financial Portfolio

All your retirement plan income

• Recommended 15% of your budget

Diversified Portfolio

Don’t put all your eggs in one basket (Stocks, bonds, growth funds)

Mutual Fund

Professionally managed account where you pool your resources to take advantage of better returns/less risk

Stocks

Buy a share, which is part ownership in a company

Bonds

Lending money to a corporation, government, or city

IRA

Traditional IRA (Individual Retirement Account):

• Pre-tax—subtract donations from income before investing, paying less tax now

• Must pay taxes on the entire amount when you withdraw

Roth IRA:

• pay tax before investing

• no taxes on any increases in value

401k

Retirement savings plan that lets you invest a portion of each paycheck before taxes are deducted depending on the type of contributions made. (Private)

Pension

Employer investment plan for employee retirement. Is either funded entirely by employer or contributions shared by employee and employer.

FAFSA

Free applications for federal student aid: Determines Expected Family contribution (EFC) to make consistent evaluation of each family’s financial circumstances.

Scholarships

Need based, merit based

Grants (Pell Grant)

Need based. “Free” government money. The Federal Pell Grant is the most common grant. Grants are based upon financial need.

Loans

Money that is borrowed that is expected to be paid back with interest.

Subsidized Loan

based upon financial need. The government pays the interest while students are in school.

Unsubsidized Loan

Available to all students without financial need, interest accrues (is received) while student is in school

Work-Study

Student provides work for the institution or other organization. Wide range of skills and work possibilities

EFC

Expected Family Contribution.

Factors used in determining EFC:

• Parent(s) income (taxed and untaxed) and assets

• Student income (taxed and untaxed) and assets

• Household size

• Number of kids in college

Life Insurance

(should be called Death Insurance)

• Meant for those left behind

• Should provide for last expenses and some

cushion to replace your salary

• Some recommend having ten times your

annual salary

• Two Types

• Term

– Time limit placed on the policy

– Payout is set and is only good upon death

– Less expensive

• Permanent (Whole Life)

– Earns a cash value (asset)

– Payout upon death or can be cashed in

– More expensive

Homeowners Insurance

• Protects home against damages to the house itself, or to the possessions in the home

• Provides liability coverage against accidents in the home or on the property

Long-Term Disability Insurance

Protects an employee from loss of income in the event that he or she is unable to work due to illness, injury, or accident for a long period of time

• Pays for daily expenses while a person is unable to work

• Most people do not believe they need this insurance

Renter’s Insurance

Protects your possessions within a house, condominium, or apartment that you rent

• Relatively cheap

• Specifies maximum coverage for personal assets

• Also covers liability from damages to a person on your property

Health Insurance

Covers expenses associated with illness, especially those that require large amounts of treatment

Uninsured Motorists Insurance

Insures against the cost of bodily injury when an accident is caused by another driver who is not insured

Underinsured Motorists Insurance

Insures against bodily injury of drivers who have insufficient coverage

Comprehensive Insurance

Insures you against damage to your car that results from floods, theft, fire, hail, explosions, riots and various other events

Collision Insurance

Insures against costs of damage to your car resulting from an accident in which the policy holder is at fault

Liability Insurance

Type of coverage that financially protects the insured individual or business if they are found legally responsible for injury or damage to another person