hon finance 4-6

When interest rates rise

consumer rates go down

you must have liquid assets and

deposit unused funds into savings

low interest rates help

purchase house for ex

high rates= less consumer spending

why you should withdraw large amounts of money

ATM fees can add up

US savings bond

Low-risk savings guaranteed by the federal government

series EE savings bonds

TAX FREE

I bods

you earn interest based on a fixed rate and an inflation rate.

● Every 6 months, a new rate is set

regular yields saving account

low or no minimum balance and allow you to withdraw money as needed

high yields saving account

pay higher interest rates than regular savings but have restrictions for minimum balance withdraw limits, and fees.

NOW accounts

Negotiable order of withdrawal accounts pays interest and may require a minimum balance in

account

Money Market Deposit Accounts

Account federally insured, has high minimum deposit requirement, pays highest rate of interest

a bank pays on accounts with checking privileges. However, the monthly bank charges may be higher than the interest.

Money Market Mutual Funds

pools the funds of many small investors and purchases high-return, short-

term marketable securities. Offers higher interest and checking privileges.

CDS

certificate of deposit

rising rate CDs

higher rates at set time periods

liquid CDs

Allow withdrawal of money without penalty (minimum balance still required)

indexed CDs

• Earnings based on the stock market (Good market=Higher earnings, bad

market=Lower earnings or potential loss of money

regular savings account

low minimum balance, insured, ease of withdrawl; LOW RATE RETURN THO

Do not allow bank to roll over into another CD

true

Funds are added by

making deposits

Funds are withdrawn by

writing a check, using debit card, making cash withdrawal

You must write the purpose of the transaction of a

check

seletion of a savings plan is influenced by

Rate of Return or yield is the percentage increase in the value of your

savings from earned interest ● Inflation ● Taxes ● Liquidity ● Safety ● Restrictions/Fees

Charges on credit card

does not impact cash balance immediately; debit card immediately reduces cash balance

use credit for

delay payment, build credit history, major purchases, online, rewards

debit card

involve amount deducted from checking account

uses pin and signature

Avoid debit for

large or online purchases bc credit more secure

you may have to pay what if you do a digital transfer

fees

Certified checks

personal check w guaranteed payments

Traveler's check

away from home

use debit to

limit spending, avoid bills paid in future, avoid interest payment or annual fee, obtain better protection

debit card comes from

checking account

Digital Payments

Cashless transactions expand with technology, improved

security, and growing consumer acceptance

online payments

Banks and online companies facilitate bill payments as

third parties

2nd largest purchase

car

driving off lot car loses

10% value

new car after 1 year loses

20-30% value

after 5 years car loses

60% value

amount of downpayment car

comes from savings

size of monthly loan car

should be no more than 20% of monthly net income

car operating costs

: oil, insurance, registration, etc

cost of vehicle should not exceed

50% of salary

new car pros

: ownership, customization, long term savings and is more cost-effective than leasing

cons new car

higher monthly payments, depreciation, maintenance

CPO car

nearly new and inspected

off-lease car

single driver, fully equipped

rental car

: has some warranty but high mileage

corporate fleet car

Typically well-maintained, high-mileage cars that are 2 to 3 years old.

anchoring

cognitive bias where people rely too heavily on an initial piece of information

asking price car

can affect perception of car's value

previous experience car

reliability, performance of the car; bias if good

comparsions bias car

compared to an apparently similar car, even if they are different in condition or mileage-)

first impressions bias car

appearance or way the car drivers

used car pros

cheaper, depreciates slower, lower insurance and registration, CPO warranty

used car cons

more repairs, limited warranty coverage, fewer features, time-consuming search

closed end lease

you simply turn in the car if you do not exceed mileage limits nor abused it

open end/finance lease

less popular, if the car is worth less than the estimated residual value—the remaining value of the car at the end of the lease term—then you must pay the difference

What is the capitalized cost of a leased car?

The price of the car you are leasing.

What is the forecast residual value in a lease?

The estimated value of the car at the end of the lease.

What is the money factor in a lease?

The financing rate on the lease, similar to the interest rate on a loan.

What does the lease term refer to?

The duration of the lease agreement.

Pros of leasing a car

lower monthly payments, new car, warranty

cons leasing car

no ownership, mileage limits, lack customization, fees

franchise dealerships

: latest-model cars, provide finanicg, and will negotiate on price (south motors bmw)

superstores car

carmax offers no haggle pricing and large selection, short term warranty, cars are certified

independent dealer

offer older cars and have lower overhead than franchise dealers (local dealer)

private dealer

costs less bc no dealer is overhead, may have maintenance. Be sure seller holds title of car

car financing

If the car is financed, you will make payments that include interest and the return of the amount borrowed. The interest rate on the loan depends on your credit score, the time horizon of the loan, and the lender

car insurance drops when you are

23 yr old

transfering tag to new car

saves money

sales contract

specifies offering price and all conditions of offer. Include trade in allowance and payment amount

single family

detached, designed for 1 family

townhomes

shares 1 or 2 walls but have separate entrance

condominiums

individually owned units within larger building, w shared common areas

multifamily home

duplex, triplex

real estate short sale

proceeds are less than the balance owed on a loan secured by the property sold

foreclosure

borrower cannot typically schedule mortgage payments, 3 months of grace period

MLS

Multiple Listing Service: comprehensive listing, updated daily of properties

prequalification

mortgage amount you qualify for, looks at credit errors, enhances bargaining power w seller. They know deal will not fall through bc you qualified for loan

earnest money deposit

money you pledge to show good faith when you make an offer.

contingency clause

you can condition the agreement to buy on factors such as availability of financing, satisfactory termite inspection, other inspection of property, or advice of lawyer or real estate expert. VALID reasons

closing costs

fees and expenses incurred during the finalization of real estate transaction, including transfer of ownership from seller to buyer

Buyers are typically responsible for paying closing costs, however the may pay

seller

closing costs are price

1-5% of price

Real estate settlement procedures act (RESPA):

governs closing on owner occupied houses, condominums, and apartment builds of 4 units or fewer.

lowballing

where the salesperson quotes a low price for the car to get you to make an offer and then negotiates the price upward prior to your signing the sales contract.

sticker price

s the manufacturer'ssuggested retail price for that particular car with its listed options.

negotiation for lower priced cars

3-4%

higher 6%-7%

lenders require an

appraisal

expenses buying a home

down payment, closing costs, principal and interest, homeowners insurance, HOA, utilities, private mortgage insurance. If you own the home you DO NOT NEED INSURANCE