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