SFL 260 Exam 3&4

What are monetary assets?

Financial resources that are cash or can be converted to cash very quickly

Benefits of monetary assets

• Low risk

• Low interest funds

What are the different monetary account types? (In order of gains)

• Checking account

• Savings account

• Money market account

• Certificate of deposit

Checking account

An account where money is taken directly when making a purchase

Savings account

Money is deposited with a financial institution and is harder to withdraw

Money Market Account

Combination of checking and saving account where you are limited in how often you can use your money.

Certificate of Deposit

Account lasts for a specific amount of time and you can’t pull your money without paying mega high fees

The role of the FDIC/NCUA

Insurance for banks that will protect your money even if the financial institution goes bankrupt

Dr. Hill’s Seven Ways of Increasing Life Harmony

1. Enhance Energy

2. Increase Quality Time

3. Learn to Bundle

4. Focus on the Most Important Things

5. Work Flexibility

6. Simplify Your Life

7. Center on the Savior

Advantages and Disadvantages of Single Income Families

Pro: No need for childcare

Con: Only one income

Advantages and Disadvantages of Dual Income Families

Pro: More income

Con: Childcare is needed

Con: Split shift is hard on marriage

Mommy Wars

Women are happiest when their employment situation is consistent with their desires.

Thrift

• The quality of using money and other sources carefully and not wastefully

• Being frugal is an important part of marriage

Frugality

The quality of being economical with money or food

Sunk Cost

A cost that has already been incurred and cannot be recovered

Remember, _______ itself is not the root of all evil.

money

Times when renting might be better than buying a home

• Staying short term

• Having a lot of debt

• Saving for a down payment

• Don’t make enough to afford a house

The biggest mistake a young married couple can make

Buying a home they can’t afford

THE STEPS FOR BUYING A HOME (9)

1. Determine needs/wants

2. Determine how much you can afford

3. Get pre-approved through financial institution

4. Get a real estate agent

5. Research properties

6. Make an offer

7. Negotiate

8. Close the sale

9. Move-in

PITI

Principle, interest, property taxes, insurance

PITI < ___%-____% of income

25%-28%

PMI

Private mortgage insurance

How to avoid PMI

Need at least 20% down to avoid paying it

Rule of Thumb for Total Cost of a Car

Should be <25% of total annual income

TRUE/FALSE: You can buy a car based on how much the monthly payment is.

FALSE

True monthly cost of car ownership should be <____% of gross _______ income

10%, monthly

TRUE/FALSE: True monthly cost of car ownership includes things like repairs, but not gas

TRUE

Car loans should end within ____ years

Four

You should change your oil every ______-______ miles

3,000-5,000

Different ways to pay for a car (least to most expensive)

• Cash (own immediately)

• Loan (Lender owns until you pay off)

• Lease (You do not own and never will)

Advantages and Disadvantages of Buying a Car from A CAR DEALER

• Most expensive

• Know exactly what you’re getting, because they have to be honest to uphold reputation

Advantages and Disadvantages of Buying a Car from A CAR WEBSITE

• Can’t test drive car, so you don’t really know what you’re getting

• Could get cheaper options than in a dealership though

Advantages and Disadvantages of Buying a Car from A PRIVATE INDIVIDUAL

• Only should be done if you know the seller, because people can be really sketchy and scummy

• Definitely cheaper, but much more risky

• Takes extra steps to ensure car quality

What does it mean to be “upside down” in a car loan

You own more on the loan than the car is currently worth. Cars sometimes depreciate in value faster than we can pay the loan.

How to avoid being “upside down” in a car loan

A large down payment

Monetary Assets main purpose and risks

• Preservation of principle

• Safe

• Low Gains

• Inflation Risk

Bonds main purpose and risks

• Provide income

• Federal, corporations, municipal

• Not as safe

• Higher gain

• Interest risk

Stocks main purpose and risks

• Growth

• Riskier, higher gains

• Market risk

Types of Asset Classes

• Monetary assets

• Bonds

• Stocks

How to estimate the amount of money needed for retirement

1. Multiply income by .7-.9 (based on common advice)

2. Multiply that by “retired years”

Issues to Consider When Planning Retirement

• Retirement location

• Retirement goals

• Health issues

• All debt paid off before retirement?

• TAXES

Roth accounts

Money is taxed before it is put into the account, but not when withdrawn

Traditional accounts

Money taxed when withdrawn (including the growth!)

401Ks

Funds managed by the company

IRA accounts

Funds are managed by self (individual retirement account)

Benefit accounts

• Contributions by employer

• Plan pays you when you retire

• Know in advance what benefits are

• Not very common anymore

Contribution Accounts

• Contributions are made by YOU

• Plans are portable

• Companies will offer a “match”