Business is the world that we live in and the things that we do are all based on business.
Business is money and money is green and green is a tree and trees make money.
■ ▪Debts from willful or malicious acts
●Tax refund loans
○ An advance on your tax refund
○ Very high interest rates
●Signals of potential debt problems
○ –Paying only the minimum balance each month
○ –Increasing the total balance due each month
○ –Missing or alternating payments or paying late
○ –Intentionally using overdraft protection or taking frequent cash
advances
○ –Using savings to pay routine bills such as food
○ –Receiving second or third payment notices
○ –Not talking to your partner about money or talking only about
money
○ –Depending on overtime to meet routine expenses
○ –Using up your savings
○ –Borrowing money to pay old debts
○ –Not knowing how much you owe
○ –Going over your credit limit on credit cards
○ –Having little or no savings for the unexpected
○ –Being denied credit due to a credit report
○ –Getting a credit card revoked by the issuer
○ –Putting off medical or dental visits because you can’t afford them
now
Other stuff I think is important
● COLA-cost of living adjustment
● Ordinary annuity vs annuity due
○ Annuity- an equal stream of payments over a stream of time
○ Ordinary annuity- payment made at the end of the year (dec 31st)
○ Annuity due- payment made at the beginning of the year (make
interest all year), (Jan 1st)
○ Assume annuity due if not specified
●Form 4868
○ six-month tax filing extension
●-When investing, you want the rate high
○ Ex: if the interest rate is 1.5% and you already paid $300 of the
$400 borrowed, you still have to pay interest on the $400
(0.015x$400)
●Adjusted balance method
○ Payments are subtracted before calculating finance charges
○Finance charge for a given month = (Beginning balance - Payments) ×
(Annual interest rate / 12)
●Rule of 78s
○ Used to determine how much interest you have paid at any point
of the loan
○ requires that you pay more interest at the beginning of the loan
○ Penalizing paying off loans early
○ reverse sum of digits= 78
●Total cost of credit
○ Includes APR and all finance charges
○ APR is the percentage cost of credit
○ Could be simple interest or compounded interest
○ Think about inflation
●Bankruptcy – what is usually NOT forgiven
○ some or all of the assets of a debtor are distributed among the
creditors because the debtor can’t pay their debts
○ More middle-class, educated baby boomers
○ Most likely to be a 38 yr old female
○ Chapter 7 Bankruptcy is an example of straight bankruptcy (not all
debts are forgiven)
■ Debtor submits a claim to court and lists all assets and
liabilities
○ DEBTS NOT FORGIVEN:
■ ▪Certain taxes and fines
■ ▪Child support and alimony
■ ▪Educational loans
■ ▪Debts not disclosed to court
■ ▪Debts from fraud, embezzlement, driving while intoxicated,
or larceny
○ Cash or is cash equivalent in the next 90 days
●Closed-end credit vs Open end credit
○ Closed-end credit: single loan for 1 purpose. You borrow once and
keep paying it
■ Ex: mortgage, car loan, payments on furniture bought
○ Open-end credit: you borrow, make payments, then borrow again.
Revolving
■ Ex: a credit card, overdraft protection
●Debit card vs Credit card
○ Debit card: spending money you have, coming immediately out of
checking acct
○ Credit card: borrowing money, paying later
●Debt to equity ratio
○ total liabilities/net worth
○ Should be less than 1
○ Don’t include the value of your home and the amount of its
mortgage in total net worth
●Debt payments to income ratio
○ monthly debt payments / your net monthly income
○ Ideally less than 20%
○ If it is > 1 than you’re in debt
○ Debt payments= consumer credit so DON’T INCLUDE
MORTGAGE PAYMENT because it is a long-term liability and not
a consumer credit
●Float vs Grace periods
○ Float period- time before bill is posted
○ Grace period- time in between when bill is posted and when you
have to pay it
●Average Daily Balance Method
○= [Beginning balance + Ending balance) / 2] × (Annual interest rate / 12)
●Previous balance method
○ Payments are not subtracted when calculating finance charges
○Finance charge for June = Beginning balance × (Annual interest rate / 12)
○ Taxable income
○
Gross income - adjustments and deductions
○ Interest calculation is made on the current balance
●Gross vs Net Pay
○ Net pay is the take-home pay; what is left after deductions from
taxes and other items. A.K.A. disposable income- amount of
money a person or household has to spend
○ Gross pay- salary without deductions
●Tax Credit vs Tax Deduction
○ Tax credit- an amount subtracted directly from the amount of
taxes owed
○ Tax Deduction- reduces taxable income, a percentage
●Head of Household
○ A single person with a dependent who lives with them (dependent
could be a child or other family member)
●weighted tax rate aka average tax rate
○ Amount of money paid in taxes / total taxable income
●Yield
○ the increase in value of your savings from earned interest
○ Yield is the interest earned
○ Principal x interest earned = percentage yield
○ $100 in savings x $3 earned = 3% yield
●Truth in Savings Law
○ Purpose is to provide consistency when comparing different
savings options at different institutions
○ Defines APY- Percentage a saver should expect to earn in a
savings acct
○ Requires disclosure of:
■ fees on deposit accounts
■ interest rate
■ annual percentage yield (APY)
■ Other terms and conditions of the savings plan
●Liquidity vs Solvency
○ liquidity - the ability to meet your short term debt/obligations
○ solvency - the ability to make enough money to stay in business long term
■ Insolvent: more liabilities than assets
●Liquid Assets