Personal Finance

4 key components of a budget

income, savings, investments, expenses

The three expenses

Fixed Expenses, variable expenses, discretionary expenses

fixed expenses

regular, predictable expenses that remain the same each month

variable expenses

expenses tat vary from month to month

discretionary expenses

nonessential expenses

The three budgeting strategies

Pay Yourself First, 50/30/20 Rule, and Zero-Based Budget

Pay Yourself First

set aside funds for long-term goals first (i.e retirement)

50/30/20 rule

allocate 505 to nees, 30% to wants, and 20% to savings and debt payment

zero-based budget

set aside specific amounts for every category each month

*roll over, surplus or deficit in next month

three ways to save for retirement

traditional IRA, Roth IRA, and 401(k) or 403(b)

traditional IRA

individual account for retirement savings managed independently. tax break on contributions, withdrawals are taxed

Roth IRA

individual account that without a tax break on contributions but withdrawals are tax free

401(k) or 403(b)

retirement plans offered by employers, allowing contributions directly from your paycheck. same employers may offer matching contributions

credit report

a financial report card that shows how you’ve managed your money and debts

FICO score

a measure of consumer credit risk used by lenders to access creditworthiness

benefits of a high fico score

easier loan approvals, better loan terms and lower interest rates

more likely to be chosen as a tenant by potential landlords, improved job prospects

three credit bureaus

equifox, experian, transunion

factors that can affect your score

history of on-time payments, credit utilization ratio, length of credit history, number and mix of accounts

credit score

above 600 is good. below 600 is bad

four types of student loans

federal subsized loans, federal unsubsidzed loan, parent plus loans, private loans

federal subsized loans

need - based, no interest while still in school

federal unsubsidized loans

not need-based, interest accumulates right away

parent plus loans

loans taken out by guardians, payments start immediately

private loans

loans from banks or other lenders based on good credit