Notes for FIN 101: William Lewis
Notes for FIN 101: William Lewis 57936
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This 5 page Bundle was uploaded by Connor Berg on Sunday February 15, 2015. The Bundle belongs to 57936 at Kansas taught by William Lewis in Fall. Since its upload, it has received 97 views. For similar materials see FIN 101 in Finance at Kansas.
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Date Created: 02/15/15
Personal Finance 101 Future Value PV 1i quotn Present Value FV 1i quotn i interest rate n number of periods 0 example problem If you wanted achieve a savings balance of 30000 in 25 years how much will you have to invest today with an interest rate of 7 0 PV 300Kx 18425 55200 today Balance Sheet A statement of your nancial position at a point in time Assets Liabilities Fair market value Payoff amount of loans amp debts of assets Ex anything Net Worth you own Your equity portion Ex of liab What you owe Solvency If net worth is positive you are solvent Total Income Expenses Cash Surplus or Cash De cit Income Cash In Expenses Cash Out Fixed rent mortgage cable tv insurance stays the same Variable dry cleaning recreation eating out gas differentiates Solvency Ratio Net Worth Total Assets Shows state of net worth at a given point in time Debt Ratio Service Total monthly loan payments Monthly gross income Budget Shortterm nancial planning report to help achieve shortterm goals Cash Budget A budget that takes into account estimated monthly cash receipts and cash expenses for the coming year Federal Insurance Contributions Act FICA or Social Security Tax The law establishing the combined OldAge Survivor39s Disability and hospital insurance tax levied on both employer and employee Internal Revenue Services IRS A United States government agency that is responsible for the collection and enforcement of taxes Federal Withholding taxes Taxes based on the level of earnings and the number of withholding allowances claimed that an employer deducts from the employer s gross earnings each pay period Progressive Tax Structure The larger the taxable income the higher the tax rate Marginal Tax Rate Tax rate paid on the next dollar of taxable income Average Tax Rate Rate at which each dollar is taxed on average 0 EQUATION Divide tax liability by taxable income Filing Status Categories 1 Single 2 Marries ling jointly 3 Married ling separately 4 Head of household 5 Qualifying widowwidower with dependent child Your take home pay Taxes due on a payasyougo basis Employer withholds taxes all year Selfemployed deduct and pay taxes 3 KINDS OF INCOME 1 Active Income Income earned on the job noninvestment incomes such as wages salaries bonuses pensions and alimony 2 Portfolio Income Earnings generated from most types of investment holdings includes savings accounts stocks bonds mutual funds options and futures Examples of this income are interest dividends capital gains and any pro ts on the sale of investments 3 Passive Income A special category that includes income derived from the real estate limited partnerships and other forms of tax shelters Gross income The total of all of a taxpayer39s income before any deductions or exemptions subject to federal taxes It includes active portfolio and passive income Adjusted Gross Income The amount of income remaining after subtracting all allowable adjustments to income from gross income equation Gross income Adjustments Adjusted gross income Adjustments taxdeductible expenses and retirement plan contributions Taxable Income The amount of income subject to taxes it is calculated by subtracting adjustments the larger of itemized or standard deductions and exemptions from gross income Standard Deduction A blanket deduction that depends on the taxpayer39s ling status ag and vision can be taken by a taxpayer whose total itemized deductions are too small Itemized Deductions Personal expenditures that can be deducted from AGI when determining taxable income Exemptions Deductions from AGI based on the number of persons supported by the taxpayer39s income Tax Credits Deductions from a taxpayer s tax liability that directly reduce his or her taxes due rather than taxable income Cash Management The routine daytoday administration of cash and nearcash resources also known as liquid assets by an individual or family Commercial Banks Largest type of traditional nancial institution and offer a full array of nancial services Savings amp Loan Associations Channel depositor s savings into mortgage loans and pay slightly more on savings deposits Credit Unions Not for pro t member owned institution that offers almost all products banks do and have higher interest rates Federal Deposit Insurance Company FDIC Covers funds up to 250000 National Credit Union Association NCUA Covers funds up to 250000 Checking Account Demand deposit An account held at a nancial institution from which funds can be withdrawn on demand by the account holder same as a checking account Savings Account Time Deposit A savings deposit at a nancial institution remains on deposit for a longer time than a demand deposit type of savings account Deposit insurance A type of insurance that protects funds on deposit against a failure of the institution can be insured by FDIC and the NCUA Interest on your money Simple Interest Interest paid only on the initial deposit Compound interest Earns interest on initial deposit and the interest earned on deposit Nominal Rate The promised rate of interest paid on a savings deposit or charged on a loan Effective Rate The annual rate of return that is actually earned during the period the funds are held Interest principal x rate x time Compound Interest When interest earned in each subsequent period is determined by applying the nominal stated rate ofinterest to the sum of the initial deposit and the interest earned in each period Special Checks Cashier s Check Good as cash drawn off the bank Traveler39s Check Used for making purchases worldwide can be cashed in other countries Certi ed Check Guaranteed by the bank from your account Electronic Banking Services ATM Debit Cards Banking by phone Online banking Online bill pay Fraud Fees If you catch fraud on credit card within the rst 9 days you only pay 50 If you catch fraud on credit card within the rst 50 days its 500 If you don39t catch fraud on credit card within 60 its full price of fraudulent charge and no refunds to your account will be given Buying a Car 1 Research your purchase 2 Select based on needs 3 Negotiate price a Arrange favorable nancing b Understand terms of sale before purchase 4 Maintain and repair after purchase Choosing a Car Affordability Operating costs Gas diesel or hybrid New used or nearly new Size body style and features Insurance costs Fuel economy Safety features Negotiation Price sticker price dealer39s cost NQP PWF Leasing a car No title Lower monthly payments usually More expensive car for the same payments A lower down payment is normal Closedend lease quotwalk awayquot from the car when the lease is over most popular Openend Lease Payment based on car s value sometimes have to pay dealership more money if you want to hold on to the car and buy Lease payment calculation based on Capitalized cost of the car Forecast residual value at end of the lease Money factor nancing rate on lease Lease term
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