Money & Financial Planning Mrs. Morris W!SE Financial Review

Sources of Income Wages Rentals Interest Capital Gains Profits Investments Entrepreneurship

Sources of Income The primary sources of income for most people between the ages of 20 and 35 who are not living on a pension or social security are: a. Profits from business b. Dividends and interest c. Rents d. Salaries, wages, and tips

Exemption An allowance that is used to reduce the amount of taxed income. Ben’s annual income is $30,000, and he contributed $3,000 to a traditional IRA in his local bank. What is his taxable income? a. $33,000 b. $30,000 c. $27,000 d. $0 because he contributed to an IRA

Liquidity The degree of ease in which assets can be sold. Liquid Products: Investments such as: Stocks Bonds Mutual Funds Money Market Funds

Gift Cards Open-loop Cards- looks like a credit card and are accepted nearly everywhere. Ex: VISA Gift Card Closed-loop Cards- cards that only work at one store or with one’s corporation brands. Ex: Wal-Mart If cards are not used within 12 months, a monthly inactivity fee may begin.

Discretionary Income The amount of an individual’s income that is left for spending, saving, and investing after paying taxes and paying for personal necessities such as food, shelter, and clothing. It includes money spent on luxury items, vacations, and nonessential goods and services.

Money Orders A payment order for a pre-specified amount of money and is purchased at different types of stores – it is used like a check.

U.S. Currency There is a belief that money has value and therefore is accepted.

Opportunity Cost Next best alternative – it is what is given up when a choice is made.

Treasury Department Role Collects taxes Prints money Issues treasury bonds If a person makes a deposit of $10,000 or more into a bank account, the bank must notify the a. US Treasury Department b. Federal Deposit Insurance Corporation (FDIC c. State Banking Commission d. Federal Reserve Board

Net Worth Net Worth = Total Assets – Total Liability (what I own – what I owe) Asset Examples: Equity in a house Equity in investments & savings Liability Examples: Mortgage Auto Loan Student Loan Credit Cards

Pensions A retirement plan which is sponsored by an employer. A company offers a defined-contribution pension plan which means that upon retirement the employee will receive a. one-half of the employee’s last year’s salary. b. the total amount of money contributed plus investment earnings. c. an amount of money based only on the length of time the employee worked for the company. d. a specified amount of money based totally on the profit earned by the company while the employee worked there.

401-k Plans An account that an employee uses to save for retirement Allows the worker to defer current income taxes on the saved money and interest earnings until he or she withdraws the money.

Traditional IRA (Individual Retirement Account) Individual Retirement Account that is tax deductible and you can contribute $5,000 a year to it. You will pay taxes on the money when you withdraw it in retirement.

Roth IRA (Individual Retirement Account) Individual Retirement Account that does not give you a tax benefit for contributing like a traditional IRA does. Instead, the money in the account grows tax free and can be withdrawn at retirement without paying any taxes.

Inflation The general rise of price levels. Who benefits? People who owe significant debt and owe large amounts of money Who suffers? Creditors, lenders, banks People living on a fixed income People trying to save money

Inflation Who benefits the most from inflation? a. Long-term fixed rate borrowers b. Lenders c. Persons or fixed incomes d. The government

Deflation The cost of consumer goods is actually declining. Who benefits? Consumers Who suffers? Companies The overall economy

Depression An economic depression is a period of time in which the economy has reached the lowest point possible. Production & Consumption drastically decreases Unemployment Rises

Graduated Income Taxes Considered a Progressive Tax Tax rate increases as the amount of taxable income or funds go up. Ex: U.S. operates under a U.S. tax system

Term Life Insurance Insurance policy that will pay a lump-sum benefit to your family or another beneficiary of your choice, if you die while the policy is in effect. It is not a permanent life insurance policy.

Whole Life Insurance A policy that is also a way to invest money. It is referred to as a permanent life insurance policy because, as long as you pay your premiums, the policy is yours for life, providing your loved ones with a guaranteed benefit upon your death.

Whole Life Insurance For the past five years, a person has had a $20,000 whole life insurance policy that has a cash value clause. The person decides to surrender the policy. At the time of surrender, the person will receive a. one-fifth of the $20,000 face value. b. $20,000 less the premiums paid. c. a calculated amount of money which includes the premiums paid as well as the interest on that money. d. a calculated amount of money that must be converted to a term life insurance policy.

Whole Life Insurance Which statement does NOT accurately describe a characteristic of cash value for whole life insurance? a. Cash value grows gradually over time b. If the policy is cancelled, you may be entitled to some or all of the accrued cash value c. Policy that accumulates cash value is less expensive than a policy that does not accumulate cash value d. When an insured person dies, the beneficiary will receive the death benefit but the insurance company keeps the cash value.

Insurance & Co-pay Health insurance covers medical expenses. Co-pay is the amount of money you pay out-of- pocket for a covered medical service. Typically a flat dollar amount for a doctor’s visit, prescriptions, or lab tests.

Renters Insurance Insurance you buy to protect your furniture, belongings, etc. in case of a burglary, fire, or some natural disaster when renting property. Also covers liability/injury to others.

Disability Insurance Insurance that will cover your bills while you are disabled or cannot work, with an injury or illness for a certain amount of time. Doesn’t replace your income.

Auto Insurance Reduce the cost of your auto insurance by: Getting good grades Having no vehicle accidents Have good credit Drive a certain type of car