Econ Exam Study Guide

the biggest *______*_ with anyones money is ________

problem, yourself

all the financial decisions an individual or family must make in order earn, budget and save

personal finance

What does living paycheck to paycheck mean?

a person who devotes their income to expenses and had little to no savings ; a person who spends their entire paycheck and has to scramble until their next payment

money owed to another person or company

debt

normal is ______

broke

live on ____ than you make

less

what are the two measures of wealth?

income and net worth

net worth is

what you OWN minus what you OWE

what is a financial plan?

a plan of action that allows a person to meet not only their immediate needs but also their long-term goals

assets are

the total value of everything you own (ex: car, house, jewelry)

liabilities are

the total of all your debt (ex: balances on credit cards, student loans)

if the value of your assets is greater than your liabilities it is a….

positive net worth

if the amount of your liabilities is larger than the value of your assets, it is a….

negative net worth

the money you bring home after taxes are taken out (this includes all sources of income)

net income

what are 5 financial goals?

1. being specific
2. measurable
3. time-sensitive
4. yours
5. written

What are the 5 Foundations?

1. Save $500 for an emergency fund
2. get out and stay out of debt
3. pay cash for your car
4. pay cash for college
5. build wealth and give

what are the two personality traits with money?

saver and spender

What is the difference between bills and payments?

bills are paying monthly, based off of usage (ex: electric bill) / payments are reoccurring and optional

what is financial literacy?

to learn, understand, and apply the skills, words, and concept that will help you make wise decisions with your money

The percentage of Americans who are living paycheck to paycheck is almost…

80%

the total student loan debt owed in the US is currently about how much:

$1.5 trillion

what are the 3 ways money flows out?

give, save, spend

a budget is a ______ for your money

plan

your budget gives you _________ to spend

freedom

self-control is \____ maturity

emtional

\___ americans are in debt

7/10 (72%)

using all of your money from your paycheck just to be able to get to the next paycheck

living paycheck to paycheck

80%\____20%

behavior, knowledge

liabilities are

(owe) payments, reoccurring (ex: car payment)

assets are

(own) is the total value of everything you own (ex: jewelry)

first foundation

save $500 for emergency fund

second foundation

get out and stay out of debt

third foundation

pay cash for car

fourth foundation

pay cash for college

fifth foundation

build wealth and give

1st wall of spending

shelter

4 components of budget

income, give, save, spend

2nd wall of spending

utilities

3rd wall of spending

transportation

4th wall of spending

food

tells you what and where you spend your money

cash flow statement

give your budget \_____ to start working

3 months

zero based budget

all your income minus expenses \= 0 (all your money has a job)

fixed expense

same amount every month (phone, wifi, subscriptions)

variable expense

price that varies based on USAGE (ex: gas, electric)

intermittent expense

pay for at certain times (ex: christmas, tuition)

discretionary expense

non-essential (ex: getting your nails done)

3 reasons to save money

emergencies, large purchases, wealth building

emergency fund

$500 for emergencies or 3-6 months of expenses

how to prioritize spending?

give, save, spend

4 walls of spending

shelter, utilities, transportation, food

an emergency fund turns a crisis into an ___________

inconvenience

What are 2 money defenses

insurance, emergency fund

emergency is an \________ expense

unexpected

keep your emergency fund in a \_________ saving account- not your checking account

separate

emergency fund is meant to be \__________ not investment

insurance

3 questions (have to say YES to all 3)

is it unexpected, is it urgent, is it necessary

accrued interest

the amount of interest charged on a debt but not that collected; interest accumulates from the date a load is issue

adults devise a \______ and follow it. Children do what \______ good.

plan; feels

building wealth is a \__________ not a sprint

marathon

building wealth (2 things):

consistency and time

compound growth

allowing money to grow for itself

compound interest

interest paid on interest previously earned (the original amount of money you invested + the interest over time

good interest

% that works for your earning money *compound growth

bad interest

% that works against you; charging you (loans and debts)

2 things that make compound interest so powerful?

time and interest rate

compound interest is earned at a \______ rate

fixed (same amount)

calculating compound interest

FV\= PV ( 1 + r/m) mt

all debt is \______

bad

credit is a product of

selling debt

3 marketing of credit

offering low or zero % interest (temporarily) , only pay minimum monthly payment , offering cash back or rewards

4 types of credit

secured, unsecured, revolving, installment

secured credit

a loan that requires collateral

unsecured credit

a loan that does not require collateral

revolving credit

automatic; credit limits (buying things at different times) (ex: credit card)

installment credit

loan w/ a fixed amount due at each monthly payment (ex: car payment)

appreciating value

something that goes up in value over time (ex: a house)

sources of credit

credit card, personal loans, student loans, mortgage, etc.

student loans are

unsecure credit and installment credit

depreciating assets

something that goes down in value (ex: auto loans)

FICO \=

credit score

credit score

3 digit number that determines how good you are at paying back money

high credit score \= \__________ low credit score\=\______

good, bad

how to boost credit score

pay more than minimum, pay early per month, pay off in full

anytime you use a credit card it \________________________

drops credit score

high credit score perks

lower interest rates, open option, higher credit limits

consequences of a low credit score

higher interest rates, limited loan options, co- sign option

the only thing you can’t do with a debit card is ___________

go into debt

true or false: you spend more money with a credit card

true

negative equity

when the value of an asset falls below what is owed on it

debt snowball method

best way possible to pay off all debts : list your debts in order from smallest to largest, pay the small debts first, once the first debt is gone keep going down the list and paying off the debts in small increments

credit score is a

“i love debt” score

sinking fund is

money that you set aside every month that you add to, to then reach an end goal of your purchase.

emergencies should be a __________ when you are saving

priority

4 types of mutual funds

growth stock

growth and income (large cap)

aggressive stock (wild child)

international

2 pros and 2 cons of owning a home

pros: cheaper in the long run, paying off your mortgage puts you closer to owning it and out of debt

cons: fixes are expensive and no amenities

4 money saving tips for renters

no amenities, roomate, second-hand furniture, older location

what makes something an emergency (3 questions)?

is it necessary, is it urgent, is unexpected

identify 3 reasons to save money

emergency fund, large purchases, and build wealth

when do credit card companies make money off of you?

when you carry a balance from month to month