Unit 2 Economics and Personal Finance

1040

The standard Internal Revenue Service form that individuals can use to file their annual income tax returns.

50/30/20

A budgeting method that allocates 50% to needs, 30% to wants, and 20% to savings and debt repayment.

Adjustable Rate Mortgage (ARM)

A mortgage in which the initial interest rate is normally fixed for a specified period of time after which it is reset periodically, often every month.

Audit

An inspection of a filer’s tax return by the IRS.

Auto Lease

An agreement where an individual makes monthly payments to use a car for a certain length of time instead of purchasing the car.

Budget

A plan of your expected income and how you will use it to meet your expected expenses over a period of time.

Cost of Living

The amount of money needed to sustain a certain lifestyle, including basic expenses such as housing, food, taxes, and healthcare.

Deficit

When your expenses exceed your income.

Dependent

Someone you financially support who can be claimed on a tax return to reduce your taxable income and lower your taxes.

Depreciation

A decrease or loss in value.

Discretionary Expense

A non-essential cost that can be avoided without affecting a household or business’s ability to survive; also known as 'wants.'

Down Payment

A portion of the total cost of an item, such as a car or house, that must be paid at the time of purchase.

Fixed Expense

A cost that can be expected at regular intervals and that remains the same amount.

Fixed-Rate Mortgage

A mortgage that has a fixed interest rate for the entire term of the loan.

Gross Income/Gross Pay

Total earnings before any deductions are taken.

Home Equity

The value of ownership built up in a home or property.

Insurance Deductible

The amount of money you pay before your insurance company pays for covered expenses.

Insurance Premium

The specified amount required periodically by an insurer to provide coverage under a plan.

Insurance Limit

The maximum amount an insurance company will pay for a claim.

Needs

Expenses that are essential for you to be able to live and function.

Net Income/Net Pay

Total earnings after payroll taxes and other deductions have been taken out.

Paycheck Stub

A document that details your earnings and the amount withheld for taxes, health insurance, retirement funds, etc.

Pay Yourself First

A method of saving whereby you put a fixed amount of income into a savings account before paying bills.

Property Tax

A tax paid on property (real estate) owned by an individual or corporation.

Residential Lease

A contract between a tenant and a landlord providing the terms and costs for renting the property.

Sales Tax

A tax paid to a governing body for the sales of certain goods and services.

Social Security

A federal program that provides monthly benefits to millions of Americans.

Surplus

When your income exceeds your expenses and you have leftover money.

Tax Bracket

A range of income amounts that are taxed at a particular rate.

Tax Deduction

An amount that can be subtracted from a person’s tax liability that lowers their taxable income.

Unit Price

The cost for one item or measurement that allows it to be easily compared to other similar products.

Variable Expense

A cost that appears irregularly or that changes in amount.

W-2

A form that an employer must send to an employee and the IRS at the end of the year to report wages and taxes withheld.

W-4

A form completed by an employee to indicate their tax situation to the employer.

Wants

Expenses that help you live more comfortably but are not a necessity.

Wealth

A measurement of your assets minus your liabilities.