Unit 3 Economics Test Review - Stephens

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)