Finance Study Guides

Study Guide Exam 1 Ch 1: Personal Financial Planning              Personal financial planning Investing money today and earning interest on it and its impact on potential earnings Time value of money- concept that says a dollar today is better than a dollar tomorrow due to inflation Debt-to-income ratio- how much consumer debt you are carrying relative to your income Goals of investing money- long term, specific, and measurable The first step of the financial planning process- financial assessment Retirement and retirement planning- the single most important financial goal and the most expensive long-term goal you have to set Earnings of a college graduate- college graduates earn on average 3 times more than a high school graduate Net worth- total assets minus liabilities Assets vs liabilities: assets are everything you own and liabilities are everything you owe Net worth problem (if your assets/liabilities increase or decrease and its impact on your net worth)- if you have more liabilities than assets, that means you will have a negative net worth, you’re in debt Cost of living- the general increase in the cost of goods and services due to inflation College graduate’s potential earnings vs high school graduate- college graduates earn on average 3 times more than a high school graduate Ch 2: budgeting           Personal budgets- they provide a structure that recognizes financial goals and organizes spending to meet those goals Personal financial plan Cash flow- when and how much money are received in your bank account Paying yourself first-funding your financial goals each month Emergency cash reserve- ready supply of cash in bank products or a money market mutual fund that you can tap in a hurry in an event of an emergency. You should have enough to keep your household running for 6 months Variable expenses and examples- change from one month to the next, often because of some action on your part. A credit card bill will change based on any payment or additional charges you make during the month Fixed expenses and examples- remains the same regardless of any activity during the month. These expenses include mortgage or rent, fixed-rate auto loans Discretionary expenses- covers items and services that aren’t necessary for maintaining your home or life. Examples; haircuts, clothes. Budgeting problem: income vs expenses- spending more than you have coming in is an issue Tracking expenses- capture your expenses, distribute your expenses based on season for example; you spend more during the holidays so more money during that season, and use budget payment plans Ch 3: banking Study Guide               Exam 1 Traditional vs online banks- online banks are the same as traditional banks except they are able to pay higher interest rates because they do not carry the overhead of a physical structure Bank accounts Compound Interest/compounding Liquidity- how easily and quickly you can convert an asset to cash. Stocks and mutual funds are liquid because you can sell and get cash easily. Bank accounts, such as savings and checking are liquid. Real estate is not liquid. APR vs APY- APR= annual percent rate, APY= annual percentage yield, a way to compare deposit products to see which the better deal is even if they have different compounding periods but the same term, higher APY could provide better return on your investment Banking fees Overdraft protection and charges- protection is service offered, charge is bank charges fee below a certain Certificates of deposit (CD) and APY vs the best rate on investment- the basic cd time deposit is ranging from 6 months to 5 years or more. CD: The relationship between interest rate paid and length of maturity or holding period- offer high interest rates for longer maturities Money Market accounts- demand accounts, good for emergencies, aren’t the same as money market mutual funds, could have restrictions on the number of transactions, require to maintain a much higher monthly balance. FDIC- federal deposit insurance corporation, each depositor insured to at least $250,000 per insured bank Identity theft Savings Account vs Annual Interest Savings Account Interest rate vs Inflation rate Ch 4: Credit and Debt               Debt-to-income ratio percentages as safety precaution in the event of a financial crisis- keep your debt to income ratio below 15% Credit loan repayment and responsibility Revolving credit: a form of consumer credit that renews the amount of credit available (up to a limit) by the amount of payment you make 3 Credit bureaus- Experian, Equifax, trans union FICO score-most important number in credit history Credit score improvement techniques Personal bankruptcy Chapter 7 and Chapter 13 Understanding the terms and implications of the debt and debt payments A line of credit Pay-day loans- let you borrow against your next paycheck Equity in a loan context Financing Credit files Upside down in a loan- you owe more than the asset is worth Study Guide Exam 1 Extra credit: career readiness definition and competencies: Career readiness: the attainment and demonstration of requisite competencies that broadly prepare college graduates for a successful transition into the workplace Critical thinking/problem solving- exercise sound reasoning to analyze issues, make decisions, and overcome problems Oral/written communications- articulate thoughts and ideas clearly and effective in written and oral forms to persons inside and outside of the organization Teamwork/collaboration- build collaborative relationships with colleagues and customers representing diverse cultures, races, ages, genders, religions, lifestyles and viewpoints. Digital technology- leverage existing digital technologies ethically and efficiently to solve problems, complete tasks, and accomplish goals. Leadership- leverage the strengths of others to achieve common goals Professionalism/work ethic- demonstrate personal accountability and effective work habits Career management- identify and articulate one’s skills, strengths, knowledge, and experiences relevant to the position desired and career goals Global/Intercultural fluency- value, respect, and learn from diverse cultures, races, ages, genders, sexual orientations, and religions