SFL 260 Midterm 2

What are the three reasons Church leaders say are acceptable for going into debt?

-Education
-Modest Home
-Basic Transportation

What did Pres. J. Reuben Clark counsel about debt?

Once in debt, interest is your companion every minute of the day and night...it crushes you

What percentage of divorce can be traced to money?

89 percent

What did Ben Franklin say about interest?

Tis against some men's principles to pay interest, and it seems against others' to pay the principal.

Credit Definition

A contractual agreement in which a borrower receives something of value now and agrees to repay the lender in the future, generally with interest; also refers to borrowing capacity

If you combine personal and national debt and divide it among each person in the U.S, the debt would equal?

$113,000

The 5 C's of Credit

Character: amount of integrity you demonstrate
Capital: worth of all your assets
Capacity: ability to repay debt from family income
Collateral: an asset pledged against a loan
Conditions: economic state of the nation or community

Credit score definition:

3-digit number used to determine creditworthiness

Credit Bureau definition:

private companies that collect and report financial info on credit reports

Credit report definition:

files of info from credit bureaus, can request 1 free per year from annualcreditreport.com, can also use creditkarma and mint

Credit Evaluation definition:

process of turning credit report into credit score

FICO score

most common credit score; 300-850, less 620 is poor; 35% based on Payment Record

Credit Score components and advice

Payment Record 35%: pay bills on time
Total Amount You Owe 30%: borrow less 15% credit limit
Length of History 15%: Don't close credit accounts
Application History 10%: Don't apply too often for cards
Credit Mix 10%: Have lots of kinds of cards

Credit Cards and Marriage advice

Apply for credit and loans as joint holder/cosign , even though both spouses have separate scores

Credit Card definition:

open credit with a specific limit, no collateral

Credit Card Balance definition:

The total amount owed on a credit card at a specific time

What to consider when evaluating credit cards?

-Annual Fee
-Perks
-Grace period
-APR
-Method of determining interest rate
-Minimum payment required

Credit Card Benefits

-Emergencies
-Reservations
-Convenience
-Cash flow and timing
-Free Services
-Credit Score

Credit Card Drawbacks

-Increased Spending
-Losing track of spending
-Interest and other costs
-Obligations on future income

Credit Card Plastic Surgery?

-Way to treat credit-holic, cut cards, keep accounts

Consumer Loan definition:

an amount of money lent for personal, family, household purposes, including car loans, should be avoided

Single-Payment Loans definition:

balloon loans" short-term lending repaid in one lump sum

Installment loans definition:

loans that are repaid at regular intervals

Secured loans definition:

loan that uses an asset as collateral

Unsecured loans definition:

loan that doesn't have collateral

Fixed-rate loans definition:

loans that maintain the same interest rate for the duration of the loan

Variable-rate loans definition:

loan with interest rate that is adjusted at different intervals, usually have an interest cap

Convertible loan definition:

type of loan can change between fixed or variable

Truth in Lending Act?

a law which requires that all lenders provide consumers with info before they sign the credit contract

Student Loans definition:

loans which often have subsidized interest rates

Auto Loans definition:

short-term loans that are secured by the automobile the loan is paying for

Payday Loans definition:

Avoid...short term loans of 1-2 weeks which are secured with a postdated check

Family Loans definition:

borrowing and lending between family members

Debt-elimination calendar definition:

strategy in which you plan out debt repayment, pay minimum on all but one...most expensive first is Ashton view, least expensive first is Ramsey view

Total Repayment and Interest Formulas Ch. 4

Total Repayment = Monthly payment * n
Interest=Total Repayment - Principal

Annual cost of insurance per $1000 Ch. 4

Annual Cost per $1000=Annual Premium/(Insurance Proceeds/1000)

Dr. Hill's biggest financial mistake

Investing in a traditional 401 K instead of a Roth

Tax Freedom Day

the day of the year on which you have earned enough to pay all your taxes; April 24 in 2015

Income Tax statistics

When first introduced < 1% paid, now > 57%

Sales Tax definition

a percentage tax applied to the purchase price of taxable goods

Excise Tax definition

a tax levied against certain products (fuel, liquor, cigarettes) on a per unit basis

Property Tax definition

a tax levied against the assessed value of land and buildings

Personal Property Tax

a state and local tax against certain personal assets

Estate Tax

tax charged on the value of a person's estate upon death

Inheritance Tax

tax on money and property received by heirs

Social Security Tax

tax on earnings to fund Social Security program

Income Tax

tax on earnings of workers, main source of government funds

Main Steps to Calculate Income Tax

AGI: Gross Income -Adjustments to Income
TI: AGI - Deductions - Personal Exemptions
TL: TI * Tax Rates
TD or TR: TL - Tax Credits - Federal Tax Withheld

Deductions

IRS-allowed reductions to your AGI

Personal Exemption

specific amount of money that can be deducted from AGI for each qualifying person in a household

Marginal Tax rate

rate at which the next dollar earned is taxed

Tax Credits

Dollar-for-dollar reductions from tax liability

1040EZ

Simplest form; below $100,000 income, standard deduction

1040A

Pretty simple, below $100,000, standard deduction

1040

Longest form, above $100,000 income, itemized deduction

Schedule A Itemized Deductions

Goes with 1040 form for deductions

Schedule B Interest and Dividend Income

Used with 1040A or 1040, if interest and dividends exceeds $1500

Schedule D Capital Gains and Losses

Use with 1040 form is you have sold a capital asset like a stock, house, or car

Publication 596 Earned Income Credit

Use with 1040 if you have low income or children

Publication 970 Tax Benefits for Education

If itemizing, use with 1040

Insurance definition

a contract in which an individual receives financial protection or reimbursement from an insurance company

Marvin J. Ashton on insurance quote

Have medical, automobile, homeowner, and life insurance

Ways to manage risk

Low Severity Low Freq: Assume (lost wallet)
Low Severity High Freq: Reduce (common cold)
High Severity Low Freq: Transfer (home fire/insurance)
High Severity High Freq: Avoid (lung cancer no smoking)

Premium definition

specified amount paid regularly in exchange for coverage

Deductible

specified amount you must pay to cover expense before insurance kicks in

Who does life insurance benefit?

Your survivors

Who needs insurance in a typical family?

Both parents, even if only one spouse works

Beneficiary definition

the recipient of life insurance

Cash Value

The amount available to life insurance policy owner while he or she is alive

Face Value

The basic benefit the life insurance company will pay to beneficiaries upon death of the insured

Policy Owner

The individual or business that pays for and owns the insurance policy

What are the 4 questions regarding life insurance?

1. Do I need life insurance?
2. How much life insurance should I purchase?
3. What kind of life insurance should I buy?
4. How should the life insurance death benefit be received?

Term life insurance definition

A policy in which the face value is paid to the beneficiaries when the insured dies; no cash value building up, term4sale.com useful to find best deal

Whole life insurance definition

A policy in which the premiums are divided between death protection and safe, relatively low return investments

Term vs. Whole Life insurance table

Term Pros: Inexpensive when young, easy to understand, low commisions
Term Cons: Premiums increase with age, no cash value, can't purchase after certain age
Whole Pros: Build cash value, cash value is tax-deferred, premium stays level
Whole Cons: Expensiv

Lump Sum insurance repayment definition

entire death benefit paid to beneficiary, not taxable as income

Interest Payment insurance repaymet definition

face value is left with insurance company, interest is paid to beneficiary for number of years, then face value paid, regular payments count as taxable income

Installment/Annuity insurance repayment definition

Paid money over period of time, portion is taxable as income

Life Annuity insurance repayment definition

Paid money guaranteed as long as you live, if you die before policy money paid out, your beneficiaries get the rest, keeps going till runs out

Tanner quote on insurance

Nothing is so certain as the unexpected...every family should have health and life insurance

Health insurance definition

insurance for expenses relating to health/medical procedures

Disability insurance definition

insurance that provides payments to insured individuals in the event that regular income is interrupted by illness or accident

Afford Care Act (ACA) Obamacare info

-Requires almost all to have health insurance or pay a penalty to higher of 2.5% income or $695 per adult and $347 per minor, max penalty $2085
-Can stay on parent insurance till 26
-Insurance companies can't terminate/limit coverage
-pregnancy exams free

Co-insurance/co-payment definition

portion of expenses beyond deductible that the insured person pays, up to an annual maximum

Maximum annual out-of-pocket cost definition

-Most you can pay towards medical care in a given year
-Premium + Annual Deductible + Max co-payment

Coordination of benefits definition

Multiple insurers coordinating insurance claims medical payments to avoid double paying

Grace period insurance definition

period of time between payment due date and insurance cancellation

Health Savings Account definition

-account created by an employer on behalf of employee to save money towards medical expenses
-larger deductibles and co-payments
-tax deductible, portable, lower premiums, savings tax-deferred
-after 65 can withdraw money in account for any reason

Long-term care insurance definition

insurance that covers the costs of nursing home facilities and long-term home health care; daily dollar benefit, many exceptions and conditions for coverage

Faust insurance quote

The Church cannot be expected to provide for every...member in case of public or personal disaster...assume responsibility for their own hour of need

Homeowners insurance definition

insurance that covers a personal residence combined with other personal protections for the owner; most include Structure, Contents, Liability

Advice for Contents insurance record

-Take detailed pictures of house items
-Keep receipts for large purchases
-Scan receipts to the Cloud

Automobile insurance definition

insurance against damage to your vehicle, damage to other vehicles, bodily injury, damage to property

Liability coverage insurance definition

auto insurance that pays for losses related to bodily injury, property damage, lawsuits, and defense costs; 100/300/50 means 100 per person for bodily injury, 300 per accident for bodily injury, 50 per accident for property damage

Mark Peterson quote

Many good people keep virtuous side of life commandments, but not temporal...must prepare for future emergency...don't assume it won't happen to us...

Six types of automobile insurance

1. Liability Coverage
2. Medical Payments
3. Uninsured/Underinsured Motorist
4. Comprehensive
5. Collision
6. No-Fault (PIP)

Medical payment coverage insurance definition

auto insurance pays for accident-related medical costs and funeral expenses for you or family members within 3 years of accident

Uninsured/Underinsured motorist coverage definition

auto insurance covers costs if you are injured in hit-and-run, or injured by uninsured or underinsured motorist; recommend keeping at same level as liability coverage

Collision coverage insurance definition

auto insurance that pays for damage to your car in an accident, regardless of who is at fault

Comprehensive coverage insurance definition

auto insurance protects from risk other than vehicle collision; including when you hit animals

No-fault insurance definition

reduces litigation costs

3 Principles of Effective Car Ownership

1. Understand why you are buying a car
2. Understand the total cost of owning a car
3. Be a wise steward over your resources: take care of your car

Good website to check total car owning price

edmunds.com

3 Ways to Finance a Car

1. Cash (least expensive)
2. Loan (next best)
3. Lease (least best)

4 Bits of Advice for Buying a Used Car

1. Contact the seller
2. Verify the vehicle history
3. Determine a fair price
4. Inspect the vehicle carefully