how should you reduce healthcare costs
increase your deductible
two most important factors that determine FICO score
payments are on time over time, debt to credit ratio
how to avoid credit card late fees
get it in by 5pm (5 days before for mail, 2 days before for online)
what should you do in the case of credit card theft?
contact issuer/bank and close it/open a new one, within two days you only can pay $50, 3-60 $500, after that all of it
should you apply an extra payment to the principal or interest?
principal
prepaid cards
card not linked to any account; secure way to carry money, but come with lots of fees (inactivity, loading the card up, etc.)
short term vs. long term capital gain
under (individual tax rate) vs. over 12 months (20% for high income, 15% for lower)
what does your interest on a credit card consist of?
variable rate and go to rate
go to rate
interest rate you are charged on unpaid credit card balances after the introductory rate ends
variable rate
interest rate that moves up and down based on benchmark interest rate not controlled by the lender, common for credit cards
defined pension plan
benefits are defined by employer using a formula that considers factors such as length of employment and salary history
compounding
earning interest on your interest; amount of time it takes money to double
proprietorship (people, death, liability, form)
owned by one person, this person dies = business dies, unlimited personal liability, file Schedule C with Form 1040
initial public offering
the first time a corporation sells a stock to the public
minimum criteria for credit score
at least 6 months of history, one account, one account reported by lender, no indication that you are dead
when should you not buy mutual funds?
before the year-end distribution is made to avoid taxes on the money
what happens to interest when a partner dies?
up to the point of death, interest is on their own return, the other partner(s) are responsible for the rest
what factor is most important to avoid risky investment?
diversification
what is the most important factor in determining in whether an investor pays more for a stock in the future?
earnings per share
P/E ratio
price of share divided by earnings per share
dollar-cost averaging
investing a set amount of money in shares of a stock on a regular time schedule regardless of the price of shares at the time, mathematically by doing this you will buy more shares at lower prices than higher prices
mutual fund
professionally managed portfolio consisting of stocks, bonds, other investments divided into shares
closed-end mutual fund
functions like an ETF, set amount of shares in an IPO, might be above or below NAV, lower fees than OEF
open-end mutual fund (shares, how they're traded, based on, fees, one more)
Pooled investment portfolios open to anyone with money to make an offering, prospectus (mission/strategy) fees are high
ETF
tracks an index (like S&P 500), trades like a stock, instant diversification
does an ETF have higher or lower fees than a mutual fund?
lower
sector index fund
similar to ETFs but instead of tracking an index they track stocks in a specific industry like energy, utilities, etc. ; shares of the stocks are traded on open market
corporation (charter, liability, dividends)
chartered by state, limited liability, dividends distributed to shareholders
what will be the biggest expense in your lifetime?
taxes
earned income
all the all the wages you make (wage, tip, salary, bonuses, commissions, royalties)
unearned income (6)
income from assets (taxable interest, alimony, business profit, capital gains and losses, pension receipts, certain tax refunds)
what voids a contract? (4)
fraud, mental incompetence, misrepresentation, duress during violence/coercion
cooling-off period
time where you can reject a contract after signing
consideration
mutual obligation to perform contract, something of value is to be exchanged
types of contracts
unilateral, bilateral, multilateral
revenue vs. earnings
amount of money the company makes by selling its product or service vs. profit the company makes after all costs of goods sold, expenses, taxes, depreciation, amortization and interest are paid
fiduciary duty
financial advisors must always put the interest of their clients first
kiddie tax
applies to the amount of your child's unearned income that exceeds $2100, your marginal tax rate applies
buying on margin
borrowing money from a broker to purchase more stock
bid
highest price a buyer is willing to pay
ask/offer
the lowest price at which a seller is willing to sell
market order
the best available price at that instant in time for an immediate execution or filling of an order, to buy pay the ask, to sell sell at bid
limit order
the specific price you set at which you are willing to either buy or sell a stock, does not limit losses
bond
interest bearing security obligating the issuer to pay the holder a specified amount of interest for a specified period of time and then repay the bondholder the face amount of the bond, usually $1000 per
corporate bond vs. municipal bond
interest on corporate bonds tax deductible for corporation, not bondholder/you can exchange for stock vs. interest tax free and sometimes state tax free too
what happens to bond values when interest rates go up?
they go down
credit repair company
advertise their services to consumers who need help with their credit but charge lots of fees
Medicare A taxes
- 2.9% payroll tax on all earned income, no salary cap, 1.45% by employer and 1.45% by employee
- additional .9% on income over 200k for singles and 250k for couples
Medicare B taxes
3.8% investment surtax on high-income earners
how is Medicare D paid for?
financed 25% by monthly premiums from the insured and 75% by taxes
what is your interest rate based on?
lowest of your three credit scores
Social Security payroll tax & cap
12.4% of all earned income up to a maximum salary cap of 118,500, 6.2% is paid by the employer and 6.2% is paid by employee
leverage
using borrowed funds to buy something (if it goes up in value, you benefit)
depreciation
gradual loss of value as something wears out
W-4 form
lets your employer know how many exemptions (dependents) you wish to claim (more exemptions = less withholdings)
gift card
now they can't expire until 5 years
three major credit reporting agencies
Equifax, Transunion, Experian
California state disability plan coverage
mandatory state disability plan, paid for by employee through payroll deductions
premium or discount selling bond
the amount above vs. below face value that a bond is valued at
default rate of interest (percent, what causes it/stops it)
28-35%, 60+ days late in making minimum payment, on time payments for 6 months stops it
are social security/medicare contributions tax deductible?
no
over the limit fee
can't be greater than how much you exceed limit, cap is $39
what is the number one rule for buying stocks?
do not borrow money to buy them
grace period
statements mailed 21 days before payment due date, no charges prior to this day
where are card payments in excess of minimum applied?
balance with highest interest rate
credit card mandatory warnings
late payment, minimum payment, 30 day warning of account closure
credit card promotional rate rule
must be at least 6 months
first year of credit card fees rule
must not exceed 25% of credit limit
credit cards under 21 rule
need cosigner and permission to increase credit limit
credit card statement rules
show how many months to pay off balance, how much to pay to be debt free in 3 years, toll free credit counseling
good/above average dividends
provides a yield greater than the interest rate in a 10-year treasury bond
are bonds a good thing to own during inflation?
no
Medicare A
all seniors get it, major items such as hospital, skilled nursing, home health care, hospice, and blood transfusions
how is Medicare A paid for?
free for seniors, paid by employees through taxes
Medicare B
optional/means tested, benefits are the same regardless of what you pay per month, eligible benefits include the doctor, outpatient services, physical exams, and cardiovascular and diabetes screening
how is Medicare B paid for?
paid by the insured/3.8% investment surtax on high-income earners
Medicare D
optional/means tested, prescription drug plan provided only by private insurance companies
which parts of medicare are means tested?
b & d
current yield
annual interest payment divided by market price of a bond
yield to maturity
how much you will be paid in the future if you hold the bond to maturity in terms of percent
how often is interest on credit cards calculated?
daily
IRA (taxes, age)
tax sheltered account for retirement investing, contribution is tax deductible, must be under 70 1/2 to contirbute
what is the maximum amount per year you can put into an IRA?
$5500 for under 50, $6500 for over
roth IRA (4)
put money in after paying taxes, no deduction, you can take money out tax-free, can contribute at any age
wash sale
you cannot declare a loss on a security if you purchase the identical security within 30 days before or after the sale
short sale
market value of house is below the loans
what three parties contribute to 401K?
you, the employer, and the US
rule of 72
- estimates how long it will take for money to double
- how many years?: 72/interest rate
- interest rate?: 72/# of years you want to double your money in
vesting
what you will actually own and be able to take with you of your employer's contribution if you quit/are terminated/retire
cliff vesting
employer sets aside money in 401K account, but you don't get it unless you work for a certain period of time (max 3 years)
graded vesting
you get a percentage of the money each year (as long as 5 years
what is tax deductible when you buy a house?
mortgage interest, points/origination fees from closing, property taxes
homeowner's insurance
package policy including damage to property and liability
four types of homeowner's insurance
structure of home, personal belongings, liability, living expenses
MSRP
manufacturer's suggested retail price, dealer's starting point
REIT
real estate investment trust, mutual funds for real estate
three types of REITs
equity (own and operate real estate), mortgage (finance property), hybrid
who manages IRA account? (5)
banks, savings and loan, credit union, brokerage firm, or mutual fund
who manages an REIT account?
a company
Health Care Reform Act (5)
no pre-existing condition denial, free preventative services, no lifetime limit, kids on plan until 26, coverage cost basis
triple net lease
in addition to rent, tenant is responsible for property taxes, insurance, maintenance, repairs, utilities, electricity, etc
workman's compensation
provides coverage for any work-related injury/illness, prevents employees from suing
who pays for workman's compensation?
the employer
who pays for disability insurance?
Supplemental Security Income (SSI) through workers/employers
what determines interest on student loans?
linked to the interest rate on the 10-year Treasury note
equity
difference between the current market value of the property and what is owed on mortgages/debts
how do you get exempt from taxes on house sale profits?
live in the same house for two of the past 5 years, exempt up to 250,000 for singles, 500,000 for couples
term life insurance
death insurance, policy pays death benefit, many employers provide
whole life insurance
term insurance + savings component (cash value), greater cost than term insurance
financial goals of owning/renting property
Use rental income to help pay for mortgage, insurance, taxes, and maintenance while taking advantage of the tax benefits and the use of borrowed funds and leverage
when can you discriminate in renters?
when you are taking a boarder in your primary residence
are roth IRA contributions tax deductibe?
no
under what conditions can a spouse have a spousal IRA account?
if your spouse does not work, you can contribute $5500 to a spousal IRA for him or her which is also deductible
max contribution to spousal IRA
$5500
restricted share units/stock options
the right to buy a stock at a set price within a specified period of time to attract/retain/reward employees but if employee has not qualified by the length of service or meeting profitability goals/is terminated it means that shares are not yours
restrictions on adjusted gross income to meet in order to contribute to IRA
if 61000 < AGI < 7100 tax deduction is reduced, if > 7100 you can't deduct, married phase out at 98000 and no deductions over 118000
what type of investment can you own in your IRA account?
stocks, bonds, mutual funds, ETFs, sector funds, money market funds
what should you do when transferring money from an IRA to a 401K or vice versa?
don't touch the money in between
tax sheltered accounts (5)
roth IRA, IRa, 401k, roth 401k, HSA
can homeowner's insurance cover replacement cost of rebuilding a house?
yes
can homeowner's insurance cover living expenses?
yes
can homeowner's insurance cover code changes?
yes
can homeowner's insurance cover personal belongings?
yes
portability of 401k account
you can leave it in past plan, move to new plan, move to IRA, or take cash value
what is the difference between a 401k and roth 401k? (3)
roth 401k not tax deductible, roth 401k distributions are tax free, roth 401k has no minimum age
is the interest rate on federal student loans the same for ugrad/grad students?
no
laws for student loans
fixed rate for your school year, 4-8% for undergrad
how are laws for student loans changing?
higher payment cap, shorter repayment period, private loans
escrow
neutral third party that holds documentation/money and distributes once closed, fee for service
are the same tax benefits if you purchase a condo/apartment as those of buying a house?
no (apartment has no mortgage/property tax deductions)
if you make capital improvements on house, does that increase cost basis for tax purposes?
yes
is maintenance tax deductible on house?
only on rental property, not personal residence
what is title insurance?
guarantees clear ownership of property to buyers and lenders
real estate gives you opportunity for?
leverage
if you sell primary residence at a loss, is it a tax loss?
no
if you buy a house in foreclosure, fix it, and sell it 6 months later, is it short term or long term capital gain?
long term
what is the main benefit of life insurance?
to establish immediate estate
benchmark home loan
20% down, 30 year loan
foreclosure causes
failure to comply with loan agreement
forced sale
sale made without the consent of the owner of the property
lien
when a property becomes security for a payment of a debt, but the filer does not have the power to force sale/take possession
PMI & cost
private mortgage insurance, protects the lender from loss in the event of a default for the amount of the loan in excess of 80%, cost is 1% of the amount of the loan per year
under what circumstances do you need PMI?
if equity is less than 20% of purchase price
second mortgages
riskier additional loan against the same property, higher rate of interest and shorter term
if there are first and second mortgages and a house is sold, who gets paid what?
first must get paid off first
in residential property sale, who pays the real estate agent?
seller
are real estate commissions set by state department of real estate?
no, 6% but can be negotiated
single most important factor in buying a house
location
who pays for an inspection/maintenance?
buyer pays for inspection, seller pays for maintenance
how should you get the price down when buying a car?
waste the salesperson's time
who does a car salesperson represent?
dealer
best days to buy a car
last 2 days of month, between christmas and new year's, when new models are coming in (aug, sept, oct)
best times to buy a car
11:30am, hour and a half before closing
invoice price
what the manufacturer charged the dealer
should you tell a salesperson if you are going to pay cash?
the dealer also wants to sell you financing and insurance so if you don't tell them you're paying cash they might come down more
cash or car
write a check for a month in advance, try to sell car and then give check for remaining balance if you do
what determines monthly car lease cost? (2)
the amount the vehicle will depreciate in value during the period of the lease combined with the number of miles driven
cap cost
value of car when you first start a lease
residual value
value of car at the end of the lease
what happens when lease expires?
you can buy the car at residual value or return it
when you invest in commercial/residential property does depreciation decrease or increase cost basis?
decrease
commercial/industrial property
require large amounts of capital
sale leaseback
company builds a property and sells it to an investor and leases it
active vs. passive in real estate
actives spend 50%+ of their working hours a year involved in business of real estate, where passive is less
what is a 1031 exchange?
defer taxes on capital gains by exchanging or replacing a property with another instead of selling it
are repairs/maintenance tax deductible on rental property if you're the owner?
yes
what are the requirements for owning a commercial property?
you have to adhere to building code, zoning laws, use permit
on real estate property, do capital expenditures increase or decrease cost basis?
increase
special tax benefit of REITs
you can hold them in a tax sheltered account
are dividends on REITs taxable?
yes, as normal income
can you buy REITs on stock exchanges?
yes
co-insurance
percent share of payment you pay after you have met deductible
deductible
what you pay per year before insurance company pays, higher deductible = lower cost of policy
copay
share of payment you pay after you have met deductible
HMO (abbr, benefits, cost, organization)
Health Maintenance Organization, nonprofit organization, comes with tax benefits, flat monthly fee regardless of usage, need to stay within providers in plan, has its own medical facilities , doctors paid salary
PPO
Preferred Provider Organization, choose from a group of providers who have their own contracts with your insurance company, more flexibility outside plan
HSA (taxes, rule)
tax sheltered accounts for medical bills, you must not be a dependent, tax deductible contribution
Flexible savings account
employer-only sponsored plan, money deducted from paycheck, need to estimate contribution per year
when you leave hospital, do you have to pay bill before leaving?
no
when they quote an interest rate and APR, what is difference?
APR reflects other charges as well
does standard policy normally cover earthquakes and flood damage?
no
how should you determine how much homeowners insurance you should carry on a house?
80% of the value
does homeowners' insurance include additional living expenses?
yes
when do you not need life insurance?
when no one depends on you for support
the older you are, does annual cost for life insurance go up or down?
up
what are life insurance premiums are based on?
age, sex, health, occupation
disability insurance
income replacement when you can't work
what is the most important thing to look at if you are contemplating disability policy purchase?
definition of disability
when you start a business, what is the first thing you need to have?
funding
Solo 401K
save as an employee and employer (lesser of 25% income or $53k)
why do people refinance home loans?
lower interest rate or monthly payment
subprime mortgage
mortgages given to people with scores of 660 or less
major reason for subprime mortgage crisis
taking adjustable rate mortgages with teaser rates
does homeowner's insurance cover contents of a house?
yes
what website should you use to check car's history?
carfax
what is tax deductible if you own rental property?
operating expenses are tax deductible, but not principal payments
does depreciation increase or reduce amount of profit you can make?
reduce
home equity loans
secured by equity of property, fixed rate of interest, kind of like a second mortgage
home equity lines of credit
HELOC, revolving line like a credit card
negative amortization
loan amount increases when there is a teaser rate, difference between this rate and market rate is added to loan
how much will lenders lend you on home mortgage? (3)
three times annual gross income, monthly mortgage payment, including principal, interest, insurance, and property taxes not to exceed about 28% of your gross monthly income, total debt payments not to exceed about 43% of gross income
is owning real estate a good thing during period of recession?
no
which is bigger - student loan debt or credit card debt?
student loan debt
do student loan payments hit your credit report?
yes
prospectus
document of disclosure which details the open-end fund's investment policy, strategy, expenses, and past performance
prepayment penalty
if the borrower prepays the mortgage proper to a specific date a penalty will be assessed. Usually the penalty is equal to a certain number of months of interest, or a percentage of the outstanding loan
What is the annual tax deductible contribution to a 401k in 2015?
$18,000 ($24,000 for those over 50)
How much are expensive items like jewelry, fur, art, and silverware usually covered up to?
$1,000 -2,000
True or false: you can convert all or part of your traditional IRA to your Roth IRA without paying the taxes due on the withdrawals from the Traditional IRA
false
Section 457 plans
defined contribution plans established by governmental agencies; similar to 401(k) but they are only funded your contributions
Can an employer contribute to a Roth 401(k)?
no, contributions must go into a traditional 401(k)
When do liens occur?
When contractors or subcontractors make improvements, repairs, or when the owner fails to pay all property taxes and assessments
Why are REIT's attractive?
The companies that operate them pay no tax on corporate income if they pay at least 90% of their income to shareholders in the form of a dividend
COBRA
medical insurance after you leave an employer up to 18 months, more expensive
goal of HMO
to keep costs low by keeping members healthy and requiring fewer treatments and procedures
forebearance
Put the total payments on hold for a number of months, but interest accuses and is added to the loan principal
how long until a property is a long term capital gain?
one year
how long until a student loan goes into default/what are the consequences?
270 days, subject to possible wage garnishment and other serious penalties
403b
defined contribution plans established by nonprofit organizations; the funds are used to purchase annuity contract whereby one receives payments on an investment for a lifetime or a specified number of years
What is the max $ you can put in a FSA?
$2500
How much should your apartment rent be?
25-35% of your gross monthly pay
Does a traditional IRA plan requirement you to make withdraws at 70.5?
yes
True or false: HSA must be used in conjunction with high deductible health plans
Tru
What is a late fee?
Fees distributed to credit card holders when payments aren't made on time
Cannot exceed the minimum payment on your card
If you exceed your limit by $5, the over-limit fee cannot be more than $5
tax rate for long term capital gains
maxxed at 20% on holdings held for 6+ months
tax rate for short term capital gains
varies by individual income tax rate; held less than 6 months
fixed rate of interest
A loan with an interest rate that will remain at predetermined "fixed" rate for the life or term of the loan. It does not fluctuate.
pass-through deduction
Brand new 20% tax deduction on business income from proprietorship, S-corporation, LLC, or partnership
Only remaining 80% of income is taxed at taxpayer's marginal rate
Available even if the taxpayer does not itemize deductions
Partnership
2+ business partners, general partner assumes unlimited liability, general partner decides end of year dividends, don't pay federal income taxes, K-1 forms used to decide individual liability for taxes
C Corporation
The most common type of corporation, which is a legal business entity that offers limited liability to all of its owners, who are called stockholders
S corporation
A unique government creation that looks like a corporation but is taxed like sole proprietorships and partnerships
How much should you invest in one sector/fund?
No more than 20% of your investments should be in one place
Index fund
A mutual fund that was designed to reduce fees by investing in the stocks and bonds that make up an index (S&P 500)