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Net Worth
assets-liabilities
Assets
anything you own with monetary value
Fixed Expenses
Expenses that do not change in the short term (ex: rent, internet, phone bill)
Variable Expenses
Expenses that do change (ex: entertainment, groceries, shopping)
Growth Stock
newer stocks, higher risk
Value Stock
older stocks, lower risk
Rule of 72
Used to estimate the number of years it takes to double the invested money
72/rate of return = time for investment to double
IPO
Initial Public Offering, growth stock
Bonds
Money payed to US government, grows over time
Gross Income
income before taxes are taken out
Net Income
Income after taxes are taken out
Bull Market
Stock market values are increasing
Bear Market
Stock market values are decreasing
Liquidity
Assets turned into cash
IRA/401k
Used to build a retirement fund
Stock
Money invested into a corporation
Dow Jones
Used as the stock market index, 30 companies
Blue Chip
Nickname for value stocks
Mutual Funds
group of stocks bought together
3 c’s of credit
1 - Capacity
2 - Character
3 - Capital
FICO score
national credit score
Principal
original amount borrowed
APR
Annual Percentage Rates
Finance Charges
interest + fees
Co-lender
the person who takes responsibility for the loan if the other faults on the payment
Collateral
assets attached to a loan (ex: car, home)
Bank Lein
the banks legal rights to an asset
Term-life insurance
beneficiary insured to get money for a certain amount of time after you pass
Whole-life insurance
beneficiary guaranteed to get money after you pass
Premiums
payments made to insurance companies for their services
Deductible
Amount paid out of pocket before insurance
Collision Insurance
full coverage (ex:car damage AND medical)
PLPD Insurance
Personal Liability Property Damage, doesn’t fix vehicle damage, does cover medical
Dividend
Amount of money paid to investors per share for a secure stock
Secured Stocks
has collateral attached to it, lower risk (ex cars and homes)
Unsecured Stock
has no collateral, higher risk
Steps for budgets
1 - Set financial goals
2 - Determine net worth
3 - Evaluate cash flow (net worth)
4 - Balance budget
5 - Follow, record, Adjust
Liabilities
any legal debt you owe
How much money should you save?
10% of gross income
Budget surplus
income > expenses + savings
Budget deficit
income < expenses + savings
Cash flow
income - expenses
Savings rules
1 - pay yourself (10% gross)
2 - Diversify savings (security, liquidity, growth)
3 - Emergency Fund
Fastest way to balance a budget
decrease expense
Pros of credit
Building credit history
Easier to obtain future loans
Immediate possession
Flexibility
Safety (tracking)
Incentives (hotels, flights)
Cons of credit
Overspending + debt
Finance chages + fees
Higher interest rates (credit cards)
impulse buying
PxRxT
P - principle (original amount borrowed)
R - rate (annual interest rate)
T - time (years of loan)
15 year vs 30 year mortgages
30 year mortages have a long repayment term, higher total interest rates compared to 15 year
No-fault auto insurance
After an accident, each person's insurance fixes the damage, Michigan is a no fault state
At-fault auto insurance
After an accident, the person who is to blame insurance fixes the damage
how many months of income should be in your emergency fund?
3-6 months (around $1000)