Personal finance notes 5
Personal finance notes 5 AAEC 2104
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This 5 page Class Notes was uploaded by Savah Notetaker on Friday October 7, 2016. The Class Notes belongs to AAEC 2104 at Virginia Polytechnic Institute and State University taught by Dr. White in Fall 2016. Since its upload, it has received 4 views. For similar materials see Personal Financial Planning in AAEC at Virginia Polytechnic Institute and State University.
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Date Created: 10/07/16
Personal Finance notes 5 The “theory” of Income Taxes Look at IRS from 1040 o Address and personal info o Filing status o Exemptions o Income o Adjustments to income o Taxes and tax credits o Other taxes o Payments o Refunds/ amount owed Exemptions “allowance” for you and your dependents o $4000 per exemption Claim yourself Claim spouse and dependents o Dependents “qualifying child or relative” Under age of 19. Under 24 and fulltime student Any age if permanently disabled Legally reducing your taxes Reduce your taxable income o Make 401 (k), 403 (b) retirement contributions Increase your adjustments o Make traditional IRA contributions Don’t recommend this to most students (get a Roth IRA) o Student loan interest, moving expenses etc. Standard vs. Itemized Deductions o Take the larger of the two o For most students us standard ** goal is to Maximize aftertax pay Credit Cards and Open credit (have between 13 credit cards) What is credit? Credit = buying something today with obligation to pay later Consumer credit o Any nonmortgage credit purchases o Auto loan, credit cards, vacation loans, etc. Open or revolving credit o Borrow up to a certain credit limit o Pay it off in full and borrow more (revolving credit o Ex: credit cards Visa, MasterCards, store credit cards, etc. Open accounts at the store (bill) Drugstore, hardware store, feed/supply stores Operating lines of credit (ag and business) For purchasing operating inputs Home equity line of Credit o All works about the same as credit cards * Schumer box provided when getting card Compare everything side by side READ IT!!! Cash advances SUCK! o Getting cash from a bank or store when on vacation Grace period: how long you have until you pay interest (pay off before grace period = no interest Main Factors Interest rate (APR) o Teaser rate Short term low rates as low as 0% APR After stated term, the rate increases o National average credit card APR = 17%19% Bankrate.com Creditcards.com Cash Advance o Bad way to get cash o Borrow cash against credit limit o Higher interest rate o No grace period Types of Open Credit Bank credit cards o Issued by bank, backed by Visa and Mastercard o May have perks Variations of bank credit o Premium or “platinum” card o Affinity card VT, MADD gets a percent as a donation o Secured credit card For those with bad credit Pledge something as collateral (bank account, CD, etc.) Credit limit = value of collateral Travel and entertainment cards o Not revolving – must pay entire balance each month Basically interest free o Probably has annual fee Singlepurpose cards o Used for only 1 store o Good was to limit spending Confined to 1 store!!! Charge accounts o Use product/service today, pay at the end of the month Phone bill, electric, medical, hardware, feed/supply Advantages Convenience Safer than carrying cash Great for emergencies Helps with record keeping o One monthly statement shows purchases Internet shopping Helps build credit history – if used wisely Extra warranties and consumer protection o $50 max for lost/stolen card if reported Use someone else’s money free for 30 days!!! Disadvantages Tend to spend more with credit card vs cash Easy to lose track of purchases o During month Fees and interest charges o High interest charges Live above your means now – pay for it later o Commit future earnings to debt payments Destroy your credit history if used unwisely Getting a credit card Shop around Look at APR, fees, as well as issuer 5 “Cs” of credit o Character: measured by credit score/history o Capacity: current income o Capital: value of your investment assets o Collateral: only for secured credit cards o Conditions: overall economy College students and credit cards New laws for those under 21 o To get card must have Income from job or Cosigner (joint account), if you can’t pay the cosigner is obligated to pay May need to cancel card to get rid of cosigners o Less active solicited credit card applications Cannot send unsolicited credit card applications Unless you authorize – credit bureau No more “free stuff” just for applying Troubleshooting your credit card situation Determine how long it will take to pay balance in full Switch to lowest APR card possible o Watch balance transfer fees! Use savings to reduce credit card balance o Not a good sign Pay credit card balance with home equity line o Then STOP using credit cards!! Work with creditor o Better than hiding from them Big Al’s tips * Only use credit card when you have the cash o Use it as convenience, not long term loan Pay balance in full every month o Carry small balance 12x per year o Make min payment though! Never make just minimum payments! (23%) o Michael Jordan rule ($2000 loan for laptop, min payment takes 23 years to pay off, $5000 in interest) o Richard petty rule ($5000 credit balance, $100 a month for 43 years, $17000 interest) o Try to pay in full No cash advances!! Have less than 3 credit cards