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 wil 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; often used when comparing how expensive it is to live in one city versus another

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. They are 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. The buyer will often take out a loan to finance the remaining balance. 

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 as long as on time payments are being made. 

Gross Income/Gross Pay - Total earnings before any deductions are taken

Home Equity - The value of ownership built up in a home or property that represents the current market value of the house minus any remaining mortgage payments

Insurance Deductible - the amount of money you pay before your insurance company pays for covered expenses. These can apply to health, auto, and home insurance. 

Insurance Premium - The specificed amount of payment required periodically by an insurer to provide coverage under a plan for a specified period of time

Insurance Limit - The maximum amount an insurance company will pay for a claim. Insurance limits are also called coverage amounts

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; also called take-home pay

Paycheck Stub - A document attached to every paycheck 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 you pay monthly bills or make purchases

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, including retirees, military families, surviving families of deceased workers, and disabled individuals

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 to evaluate which is a better deal

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 teh end of the year to report the employee’s annual wages and taxes withheld from their paycheck

W-4 - A form completed by an employee to indicate his or her tax situation to the employer, who then withholds the corresponding amount of taxes from each paycheck

Wants - Expenses that help you live more comfortable but are not a necessity

Wealth - A measurement of your assets (money you’ve saved or things of value you own) minus your liabilities (money you owe others); this is also known as worth