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291 Cards in this Set
- Front
- Back
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How do we define "millionaire"?
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People who are financially independent, who can live throughout their adult lives without requiring the assistance of government welfare programs, Medicare, or Social Security
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What percentage of the population uses food stamps?
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10%
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What ratio of people receive Social Security?
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1 of 6
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What percentage of Americans can be considered "rich"?
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1%
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What percentage of Americans are financially independent?
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5% (includes the 1% of "rich")
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What percent of Americans is "essentially broke"?
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50%
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What percentage of Americans requires government aid?
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95%
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According to the IRS, what percentage of households have net worth >/= $1 million?
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4.9%
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How do we distinguish "rich" from "wealthy"?
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"Rich" applies only to money
"Wealth" refers to quality of life (doing what you love) |
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What ratio of "millionaires" are self-employed?
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~2/3
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What quality is the cornerstone of wealth?
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Frugality
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Define: Unsecured line of credit
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That money is being loaned on good faith/credit history without collateral
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Define: Credit
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The amount of money a lender is willing to loan, subject to repayment terms and conditions such as interest
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Define: Debt
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The state of owing something (such as money)
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Define: Debtor
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A person or entity with debt which owes or has the obligation to repay the debt
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Define: Principal
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The amount of money borrowed or loaned
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Define: Interest
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The cost of money paid by borrower to obtain use of the principal, or received by the lender for providing the principal.
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Define: APR
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Annual percentage rate = an expression of interest on the principal
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Define: Fixed rate of interest
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A loan with an interest rate that will remain at a predetermined rate for the life/term of the loan
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Define: Adjustable rate of interest
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A loan for which the fixed rate of interest may change during various periods. Common in home loans.
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Define: ARM
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Adjustable rate mortgage = home loan with an adjustable rate of interest
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Define: Variable rate of interest
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An interest rate that fluctuates with the changes in an underlying published interest index rate that is not controlled by the lender
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Define: My "Go-to" Rate
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The interest rate charge don unpaid balances (in addition to the variable interest rate) to determine total rate of interest
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True or false: one's "go-to" rate is affected by one's credit score
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True
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Define: Installment debt
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Money that is borrowed to purchase large items and repaid in regular installments, with interest comprising most of the early installments and principal the later (e.g. a mortgage)
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Define: Revolving credit
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Credit/funds made available for use at any time, subject to terms of repayment, up to some fixed maximum (e.g. credit cards)
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Define: Default rate
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An accelerated interest rate charged as a penalty for a bill 60 days overdue
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Define: Universal default
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The ability of a lender to unilaterally change the terms of a loan upon learning that their customer has defaulted with another lender
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Define: Double-cycle billing
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Calculating finance charges based upon the average balance owed over 2 billing cycles
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Define: Balance transfer fee
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Fee charged upon transfer of a balance from one credit card provider to another
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Define: Grace period
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A period in the billing cycle during which no penalty is due if payment received on time
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List the credit card fees that may currently be charged:
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-Annual membership fees
-Fees when using another bank's ATM -Foreign exchange transaction fees (even if in $) -Overdraft fees -Return check fees (bank will not honor payments) -Miscellaneous services -Duplicate card fees -Cash advance fees (even from own bank) -Balance transfer fees -Closing account fees |
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What is a credit card "warranty"?
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-An extension of the manufacture warranty for up to an additional year on "eligible purchases"
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What are the conditions of a credit card "warranty"?
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-Made within home state or within 100 mi of home
-Purchase price >$50 -Purchase made directly with credit card -Payment has not been made in full -Can only receive up to the remaining amount due on the purchase |
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What is the approximate interest rate on "convenience checks"?
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29-30%
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What are the types of bankruptcy?
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Chapter 7
-Debts discharged -Requires a lawyer, usually paid upfront Chapter 11 = Personal bankruptcy -Supervised by the court. Assemble a plan to pay what you owe in about 5 years |
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What sorts of payments are not covered by bankruptcy?
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Student loans
Alimony Child Support |
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For how many years an a bankruptcy appear on your credit report?
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10 years
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What level of government rules on bankruptcy?
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Federal
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Define: Debit card
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A secured bank card that takes money directly and immediately from your bank account to pay for purchases
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Why will debit cards not improve your credit score?
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Because there is no risk
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Define: Charge card
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A credit card issued by a retailer, allowing the charge of purchases made exclusively at that retailer
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Define: Credit report
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Financial report card. Includes information on billing and payments, but also a lot of personal information from the previous 10 years.
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What are the three major credit reporting agencies?
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Transunion (Empirica score)
Equifax (Beacon score) Experian (Experian model) |
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Distinguish voluntary from involuntary requests to see credit reports
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Voluntary => those authorized by you (these are reported and will still for up to 2 years)
Involuntary => not authorized by you |
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What is the only federally-mandated website for free credit reporting?
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www.annualcreditreport.com
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What is the FICO score?
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Numerical "score" (300-850) generated by the Fair-Isaac Company to approximate rate of default
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Among the pool of people with FICO scores between 800-850, ~how many people are likely to default?
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1%
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Among the pool of people with FICO scores between 750-799, how many are likely to default?
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2%
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Among the pool of people with FICO scores between 700-749, how many are likely to default?
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5%
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What are the 5 basic categories on which the FICO score is based, and how are they weighted?
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-Record of paying bills on time over time (35%)
-Total balance on credit cards and loans to total credit limit (30%) -Length of credit history (15%) -New accounts and recent applications for credit (10%) -Mix of credit cards and loans (10%) |
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What is an ideal range in which to keep the balance to credit limit ratio?
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30-50%
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Why is it bad to cancel old credit cards?
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-Because it increases one's overall debt-to-credit ratio (30% weight in FICO score)
-Because it decreases the length of your credit history (about 15% weight in FICO score) |
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Associate the credit score ranges with lender interest rates (qualitatively)
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780-850 = Best
720-779 = Good 661-719 = Okay 620-660 = Sub-prime 560-619 = Bad 500-559 = Worst 300-499 = Toxic |
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True or false: one's credit score is included in one's credit file
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False
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What is roughly the appropriate distribution of debts?
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-2 credit cards
-1 charge card -1 installment loan |
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What sorts of debts are considered "good debt"?
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-Education
-Car -Mortgage -Starting a (well-thought-out) business |
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What sorts of debts are considered "bad debt"?
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-Borrowing to support an extravagant lifestyle
-Keeping up with the Joneses |
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What percentage of the government income tax revenue is paid for by the "rich"?
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40% is paid by the 1% of Americans considered "rich"
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What is the most common job among "millionaires"?
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Self-employed
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True or false: Most millionaires derive the bulk of their wealth from inherited money
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False
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How is wealth distinguished from "being rich"?
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Wealth is about lifestyle, not counting money
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True or false: Being cheap is an important part of being wealthy
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False: Frugality is the cornerstone of wealth, but being cheap is just excessive
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True or false: When opening an account at a credit union, it is important to compare fees at different ones
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True! Different companies, etc. will have different rates and fees
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When is the best time to establish credit?
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When you don't need it
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True or false: Paying in cash will not affect your credit score
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True
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What is the fundamental difference between debit cards and credit cards?
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Debit cards are safe for vendors, because they are secure. Credit cards are unsecured lines of credit.
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True or false: Merchants prefer that you purchase with credit cards
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False: Merchants pay a lower fee to swipe debit cards, because they are zero-risk.
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True or false: The new credit laws make it more convenient (and less expensive) to get cash advances from ATMs
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False! even after the passage of the new laws, getting cash advances on your credit card is awful with awful interest rates
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At what time of day are credit card payments due? When should they be sent?
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ARRIVE BY 5pm on close of business day (or over the weekend if a weekend/holiday). Should be sent at least 2 days before online or 5 days before by post.
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What is a variable interest rate?
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An interest rate in addition to the "go-to" that fluctuates with an index outside of the bank's control. Can be raised or lowered without asking
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True or false: For every dollar you earn, you pay off only cents of your debt
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True: Need to subtract taxes and bills beforehand
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If you intend to overpay for the minimum balance, what part of your debt should you pay off?
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The principal. The interest will follow automatically.
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What is a balance transfer fee?
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A fee (usually about 2-5%) charged for transferring a credit card balance from one provider to another
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What is the first thing you should do if you think you're a victim of credit card theft?
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Contact the card issuer/bank to close the account/ask for a new card/account
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True or false: You need to file a police report in the case of credit card theft
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False. You DO need to, however, if you're a victim of IDENTITY theft.
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What thing first thing you should do if you think you're a victim of identity theft?
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File a police report and WRITE DOWN THE NUMBER OF THAT REPORT
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What is the only federally-mandated website for free credit reporting?
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www.annualcreditreport.com
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What are the three major credit reporting agencies?
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Transunion
Equifax Experian |
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What is the highest possible FICO score?
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850
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What are the two most important determinants of your credit score?
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-Paying bills on time over time
-Debt-to-credit ratio |
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To what percent range should you limit your debt-to-credit ratio?
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30-50%
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How many FICO scores do you have?
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3. One from each of the major credit bureaus (Transunion, Equifax, Experian)
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True or False: Your FICO score will appear on your credit report
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False
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How has the credit crunch affected credit-card-issuer policy?
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-Raising interest rates
-Reducing credit limits -Increasing fees -Canceling inactive cards -Reducing/eliminating teaser rates/award programs -Making it more difficult to qualify for a card |
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According to the new law, what is the maximum penalty that can be charged for going over your credit limit?
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The amount spent over the limit or $25, whichever is less
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True or False: A bank cannot charge you an overdraft fee unless you let them
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True
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How long must a balance be overdue before a card issuer may raise rates?
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60 days, unless refers to a variable rate
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What is an interest default rate?
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An increased interest rate imposed punitively upon balances that are over 60 days overdue
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True or False: Under the new laws, default interest rates apply to the balance until it is paid off in full
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False. Lower interest rates must be returned to lower rate after 6 consecutive months of on-time payments
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Under the new laws, how long in advance must cardholders be informed of interest rate raise?
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45 days
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Under the new laws, what is the limit on interest rates that may be applied to credit card balances
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There is no limit
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True or False: The new laws dictate the balance to which payments above the minimum will apply
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True. The new law dictates that any payments made over the minimum will apply to the balance with the highest rate of interest
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Which is preferable, a written or a spoken contract?
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Written, especially if it has the potential to end up in court
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True or false: Signing a contract is entering into a legally-enforceable agreement
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True
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What is a notary public?
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A public officer constituted by law to witness the execution of certain classes of non-contentious documents (estates, deeds, power-of-attorney, trusts, etc.)
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In which years are Social Security and Medicare, respectively, estimated to run out of reserve money?
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2030 and 2019 (Medicare is in much worse shape than SS!)
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If a person reaches the age of 65, what is the chance (s)he'll live over 85?
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50%
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What percent of the government's budget is allocated for the benefit of senior citizens?
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40%
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What is the total amount paid to FICA? How much is paid by the employee and how much by the employer?
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12.4% of all EARNED INCOME up to $106,800
6.2% each from employer and employee |
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What is the total amount paid to Medicare? How much is paid by the employee and how much by the employer?
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2.9% of EARNED INCOME with no limit
1.45% each from employer and employee |
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True or false: Social security and Medicare taxes usually make up the smallest payment people make to the government
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False. Many workers pay more in SS/Medicare than in income tax
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True or false: Recipients of SS and Medicare funds are not taxed on this income
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False
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How many exemptions may you declare on a W-4 form?
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As many as you actually have and fewer, but no more
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What percentage of government tax revenue comes from individual income tax?
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46%
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What percentage of government tax revenue comes from social security/medicare?
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34%
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What percentage of government tax revenue comes from corporate income tax?
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11%
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What percentage of government tax revenue comes from excise and other taxes/fees?
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8%
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What percentage of government tax revenue comes from estate taxes?
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1%
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What is the marriage tax penalty?
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Married couples who file jointly and together earn more than $67,900 are charged taxes at the rate that the tax bracket in which their join income falls
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True or false: You and your parents may both receive tax deductions for declaring you as a dependent, because you are dependent upon both parties
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False. An individual may be claimed as a dependent on only a single tax return
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How is a short-term capital gain distinguished from a long-term gain?
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A short-term capital gain is profits from the sale of an asset held for 12 months or less, whereas a long term capital gain comes from the sale of an asset held for longer than 12 months
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What is the tax difference between a long- and a short-term capital gain?
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A short-term capital gain is included in total taxable income, whereas a long-term capital gain (on an asset held for at least a year prior to sale) cannot be taxed at a rate higher than 15%
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What is a "wash sale"?
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Purchasing and selling a stock within a 30 day period to create a capital loss
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What is the alternative minimum tax and why does it exist?
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The AMT is a way of re-calculating taxes such that some deductions aren't taken that prevents higher-income earners from cheating the system by claiming deductions through loopholes
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True or False: Overspending is not unique to a single demographic
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True. Overspending is done by people of all demographics
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What is the first step to saving money?
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Assemble a budget, setting aside an emergency fund that will cover 3-6 months of comfortable living in the event of an emergency
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What is Freddy's rule?
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The first person you pay each time the check comes in is YOU! Save 15% of each paycheck.
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What is the rule of 72?
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Interest rate * number of years required to double amount saved = 72
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What is the magic of compounding?
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Money grows rapidly through compounding
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True or False: In a proprietorship, the proprietor has unlimited liability
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True
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True or False: A proprietorship declares taxes as its own entity
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False: The proprietor pays company taxes on his/her personal tax return
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How does a general partner differ from a limited partner?
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The general partner manages the partnership and has unlimited liability, while the limited partners can only lose the money that they invested in the partnership
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How is a partnership taxed?
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Each partner and the IRS receive a K-1 form with the information required for the partners to file individual tax returns on the partnership's earnings. Because this is based on profits, not cash distribution, partners may be liable for income tax even if they don't get cash from the partnership.
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Who determines the dividend to be paid?
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The board of directors
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On what government level are corporations chartered?
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Corporations are chartered on the state level
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How are C-corporations taxed?
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C-corporations are taxed on the corporate level, but individuals are responsible for taxes on dividends
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What is the FDIC?
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The FDIC is a federal agency that guarantees checkings, savings, IRA, and CDs (and certain other retirement funds) to a maximum of $250,000
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True or false: The FDIC guarantees IRAs, savings accounts, money market funds, and other non-stock market investments
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False: The FDIC guarantees checking and retirement funds, not MMFs
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What is the expiration date of the FDIC guarantee?
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There is no expiration date
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Define: Bid
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The highest price a buyer is willing to pay at the moment
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Define: Offer
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= Ask, the lowest price a seller is willing to sell for at the moment
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Define: Ask
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= Offer, the lowest price a seller is willing to sell for at the moment
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Define: Market order
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An order to buy or sell at the best available price
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Define: Limit order
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An order to buy and sell at the best available price, but to spend no more or receive no less than some specified amount
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True or False: Limit orders limit losses on bad investments
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False
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Define: Money Market Fund
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A security whose unit price is always $1 that pays interest according to the current market rate. A way to earn current market interest with a high degree of safety, liquidity.
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How does the return on a MMF change as interest rates rise?
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The return will rise
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What is the NAV of a mutual fund?
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The total value of a funds holdings divided by the number of shares outstanding. This value is calculated and published once daily after the market closes.
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What is a prospectus?
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A description of the fees/expenditures, strategy, policy, and past performance of an open-end mutual fund. An open-end mutual fund MUST be sold with a prospectus.
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How are open-and closed-end mutual funds different?
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An open-end mutual fund sells shares and must buy them back if the holder doesn't want them anymore. A closed-end fund sells a certain number of shares, then trades like a stock on the open market.
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True or false: A closed-end mutual fund is traded on the open market at its NAV
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False. A closed-end mutual fund behaves like a stock, and can trade at a price other than its NAV.
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What is an ETF?
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A computer-managed stock bundle that tracks some major index, but trades like a stock. Fees for ETFs are lower because they aren't actively managed.
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Define: Sector Fund
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Like an ETF, a sector fund is a computer-managed stock portfolio; however, rather than tracking an index, a sector fund will track an industry or region
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What money should be used to invest in the stock market?
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Money that you will not need in the next 5 years
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True or false: It is advantageous to purchase stocks in December, so that you can capitalize on dividends paid
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False: There's no reason to buy a stock just in time to get taxed on the dividend!
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How far in advance should a person look to determine whether a stock is a value buy?
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6-18 months. You want long term growth, but it'd hard to say anything with certainty about the market 18 months down the line
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True or false: It is better to buy a low-priced stock than a high-priced one
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False. It's not the AMOUNT of growth, but the PERCENT growth that matters.
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True or false: It's acceptable to invest in "damaged" stocks
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True, as long as these aren't damaged companies
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What is the most important determinant of whether people will pay for a stock in the future?
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The PEG rate = price/earnings to growth rate ratio
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What is a good PEG rate range for a growth investor? What is a bad one?
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-PEG rate < 1 => good for growth investor
-PEG rate >2 => a selling rate |
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What is the "market cap" of a company, and why is it important?
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An indicator of how much investors think a company is worth. Calculated by price per share by number of shares outstanding.
Small-cap: $300m-2b Mid-cap: $2-10b Large-cap: >$10b |
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What is an IPO?
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The initial public offering -> a stock released to the public for the first time. Usually timed to favor the seller, not the investor.
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What is Cramer's Rule?
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Spend one hour per week researching each stock in your portfolio
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Why is it useful to buy and sell stocks in stages
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Even professionals can't buy at the minimum and sell at the maximum. Buying and selling in stages helps to maximize profit and minimize loss.
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True or false: It is better to pay taxes on profits than to incur a loss
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True!
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What is "dollar-cost averaging"?
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The discipline of investing a certain amount of money in business over regular intervals for some period of time. If you have the stomach for this, you'll find that you earn more than you lose, and it's a good investment strategy.
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How often should you reallocate your portfolio?
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Once per year
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What is the most important way to reduce risk while investing?
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Diversification
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How do you compound in investing?
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Reinvest dividends
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What should you do if the reason you bought a stock no longer exists?
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Sell it. Get out.
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Why is it important to consider different brokers' fees?
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Because you have to factor in these fees when counting your rate of return
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What is the concern when having a broker manage your money?
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Because they're paid to out-perform averages, professionals are more likely to drop safe, low-return stocks for bigger gambles
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What is a bond?
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A bond is an interest-bearing security that obligates the issuer to pay a specified amount of interest for a specified time, then repay the face value of the bond
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True or False: US Bonds are considered to be very safe.
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True. They're among the safest in the world, because they're guaranteed by the US Treasury
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True or False: Some bonds may be free of federal AND state taxes
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True. State and muni bonds are free of federal tax. Some states allow state and municipal bonds to be tax free for residents of that state as well.
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How do bond prices fluctuate with interest rates?
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As interest rates rise, already-outstanding bond prices fall, and vice versa.
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What is a stock option?
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The right to purchase a certain stock for a certain price within a certain period of time.
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What happens if a stock option isn't exercised within the specified period?
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Then it's worthless
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True or False: Stock option profits are subject to the AMT
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True
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How many stocks are in the Dow Jones index?
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30
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Which level of government establishes the community property and divorce laws?
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States
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True or False: A pre-nup agreement is always binding
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False. Not binding if signed under duress.
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What is the current maximum income tax?
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35%
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Should you get married if you haven't seen your partner's credit report?
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NO
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Is buy and hold still the way to go with stocks?
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No. It's buy and HOMEWORK
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What do you include when calculating the rate of return on an investment?
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Growth and dividends. It's a percent returns.
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How is interest on a home loan determined for a working couple?
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All three credit reports are pulled for each person, and interest is set based on the lowest FICO score based on these reports.
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How long in advance of home-hunting should you pull your credit score and why?
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6-12 months before, to clean up any errors.
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True or false: real estate trusts and IRAs are personally managed
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False: Real estate trusts are professionally managed
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True or false: real estate trusts and IRAs are professionally managed
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False: IRAs are personally managed
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What is the best way to hedge one's bets against inflation?
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Investing in the stock market
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How can a single investment allow diversification?
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Invest in ETFs, sector funds, or mutual funds
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True or false: It is better to invest in money market funds in times of inflation
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True! Interest rates increase with inflation, to the interest you earn on the money market increases
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What is the maximum that you can put into an IRA, Roth IRA, or combination of the two?
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If you're under 50: $5000
If you're over 50: $6000 No amount exceeding what you earn, though. |
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True or False: The maximum you can put into an IRA is always $5000
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False: If you're over 50, you can put $6000 in. If you make less than $5000/year, you cannot put $5000 into your IRA
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True or False: Under no circumstances may a landlord discriminate on the basis of race, religion, gender, age, disability, sexual orientation, etc.
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False: Though true in general, you can be as selective as you want for a boarder in your personal house
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True or false: When renting an apartment with a roommate, only the individual with the highest credit score should be on the lease
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False: Everyone living here should be on the lease. It's a contract!
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How does the IRA differ from the RothIRA?
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-In IRA: Contribution is pre-tax (tax deductible), but taxed when removed.
-In Roth: Contribution is post-tax and not taxed when removed (though interest is...dividends are not!) |
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What is a spousal account?
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If you have a job, but your spouse does not, you can contribute up to $5,000 tax-deductible to their account in addition to your own. This does not apply to domestic partnership
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What are the income restrictions on Roth IRAs?
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Phases out from $105,000 and $120,000 on a single return or from $167,000 and $177,000 on a joint return
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Does the spousal account apply to domestic partnerships? Why or why not?
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No. It is federally-regulated, and the Federal government does not recognize domestic partnerships.
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What are the income restrictions for tax reductions from deposited cash in the traditional IRA when your employer has a retirement plan?
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-With an income between $56,000-66,000 (single) or $89,000-109,000 (jointly) begins to phase out deduction allowed
-With an income > $66,000, no deduction may be taken |
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True or false: Investment earnings within an IRA or RothIRA are tax-free
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True, until the money comes out. This means that the pre-tax value is what is compounding.
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When you transfer money from one retirement account to another, is it better to do a direct-to-direct transfer, or to handle the money yourself?
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Always direct-to-direct. If you MUST handle it, get it done in under 60 days, to avoid a penalty.
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What is a SEP-IRA, and why is it important?
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A special IRA for someone who is self-employed. It can allow deductions up to $49,000/year
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What is the maximum allowed contribution to your 401K?
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-$16,500 for people under the age of 50 or $22,000 for people over the age of 50
-No more than 25% of your wages and your employer's contribution -Whatever your employer decides is the limit, if it's lower than the other two. |
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True or False: 401Ks and Roth401Ks can be rolled over to IRAs and RothIRAs upon termination of a job without incurring a penalty
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This is true for the Roth, which is post-tax, but there is an income limit for the IRA that results in penalty
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True or False: The income limit that applies to the RothIRA does not apply to the Roth 401K
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True. Therefore, the limit is $16,500, including contributions to the 401K
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Is it a good idea to borrow from your 401K? Why or why not?
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No. In addition to interest payments, observe that you are repaying this loan with taxed money that will be taxed again upon withdrawal
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Can non-profit employers offer their employees retirement plans?
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Yes. These are 403b plans, which operate in almost exactly the same way. The employer can even contribute.
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What is "vesting," and why is it done?
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Holdback of all or part of employer contribution (the "non-vested" portion) to 401k in event of termination of employment
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What is a Solo401k plan, and what are its benefits?
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Sole-proprietors can save up to $49,000
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When refinancing your home, why will the lender send an inspector?
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To determine the market value of your home
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What is the payment schedule of the benchmark home loan?
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20% down payment and a 30-year fixed-rate loan. Interest won't change. Pay 90% interest for about 8-9 years, then mostly principal.
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True or false: property taxes are paid to the state
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True
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True or false: Tax benefits for condo owners are the same as those for apartment renters
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False. Condo owners get the tax benefits of a home owner
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When selling a house, do you want your tax basis to be high or low? Why?
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As high as possible, because gives least taxable profit
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How do you ensure that a seller actually owns the property you're buying?
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Get a title insurance report
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True or false: Profits from the sale of a home are capital gains; losses from such a sale are capital losses.
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False. The loss from the sale of a home is NOT a capital loss
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What is the tax advantage of remodeling your home?
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Money invested in capital improvements increases the cost basis of the home, which decreases the taxable profit upon sale.
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True or false: It is difficult to change the title on a property, so you should always get legal advice when setting the title in the first place.
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True
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Where should you begin looking for a new car?
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Online! Figure out what kinds of cars you like and research them
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If you're not getting a car from a certified dealer, what is your last step before putting the money down?
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Spent the $20 on carfax to track the VIN number to find out whether it was stolen or salvaged.
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What are the best days to buy cars?
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-The last two days of the month
-Between Christmas and New Year |
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Is it okay to get up and leave a negotiation for cars?
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Yes. This is actually the best way to protest stupid processing fees. Leave a phone number. The negotiation doesn't need to be over.
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Why is it often better to shop large dealerships than smaller ones?
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Because often smaller dealerships get their cars from larger ones, so you have to pay that mark-up.
Disclaimer: It is BY NO MEANS a rule that large dealerships will have better prices. It's only an observation that this can be true. |
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True or false: While negotiating, keep in mind that the invoice price is what the dealer paid, and so they won't go below that
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False! There's often a manufacturer incentive for the dealer, so they pay less. Bargain as though the invoice price isn't the lowest you can go, especially if you're looking at an older model
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True or False: It is common to finance with the car dealer because they give you a better deal
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Although 75-80% of people finance with the dealer, it is rarely the best deal. Usually it's better to finance your car on your own and then see if they can beat your find AFTER having negotiated the car price.
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How long do you typically have to complete a trade-in?
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30 days
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True or false: When negotiating pricing in leasing, you want to decrease both the "cap" cost and the residual value.
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False. You cannot negotiate the residual value.
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On what is the cost of a lease based?
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The cost of FINANCING. Not the price of the car.
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How does the government encourage home ownership?
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Through the tax code! Subsidy in the form of tax deduction on:
-Property taxes -The cost of PMI (if your income is under $114,000) -Interest and "points" (not principal) for a mortgage on federal and state taxes |
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What value of capital gains from the sale of a primary residence is tax exempt? And what are the requirements to consider that home a primary residence?
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If an individual (or couple) has lived in a home any two of the last five years, they may claim a tax exemption on capital gains up to $250,000 ($500,000) upon sale
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True or false: Unlike apartment rent payments, mortgage interest payments are tax-deductible
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True! That's government motivation to buy a home
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If you don't have the funds to make a 20% down payment, how is the lender likely to get security from you?
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By making you buy PMI, at a rate around 1 point (1% of the loan) per year
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What is "equity" in the context of purchasing a home?
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The difference between what the home is worth and how much you owe in mortgages
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When you're locked into a certain credit score and loan principal, what is the easiest way to decrease interest owed?
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Pay more points of interest upfront. Each point of interest paid upfront will lower the interest rate by 0.25%
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Why is a second mortgage considered "riskier" than a first mortgage, and how are the rates adjusted for this concern?
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Because, on the event of a foreclosure, the second mortgage is paid AFTER the first is paid in full. This is what 2nd mortgages tend to be shorter-term and higher-interest
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What is the set commission rate for the real estate broker selling a home?
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There is none! It's always negotiable!
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True or false: Because sellers and brokers are required by law to tell you of material defects in the home, it is unnecessarily expensive and troublesome to consult a professional for inspection
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False! You should always get a professional inspection. If something is wrong, the seller has to fix it immediately or drop the price so you can fix it.
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What is a "comp" in real estate terms?
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Comparable sales (usu. form the last 6-12 months). You should look at these independently, whether you're selling or buying.
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True or false: Most of the rich people in the US make more than 6 figures
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False. Most don't make 100k/year
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What is the estimated cost of medical care for a family of 4 (2 kids)?
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$13,000
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What is the only "free lunch" in investing?
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Diversification
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What is the key date in the Health Care Reform plan and why?
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2014
By this year, all US citizens and legal residents must have health insurance or be fined (1% income or $95/adult, $46.50/child) |
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True or false: Even after the changes imposed on 9/23/2010, insurers can cancel a person's policy when they get sick and restrict coverage to a lifetime limit
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FALSE
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What change to medicare taxes will be made in 2013?
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High-income earners will need to pay a 3.8% medicare tax on unearned income (e.g. dividends).
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True or false: It is the responsible thing to do to pay off your loans before you start saving
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False! The first person you pay is YOURSELF!
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True or false: It is the responsible thing to do to pay off your loans before you start saving
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False! The first person you pay is YOURSELF!
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True or false: Corporations can deduct interest they pay, but not dividends
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True.
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True or false: Corporations can deduct interest they pay, but not dividends
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True.
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True or false: It is NEVER okay to sign a contract before all the blanks are filled in
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True. That written contract is legally enforceable. The document can be presented in court! You signed it!
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True or false: It is NEVER okay to sign a contract before all the blanks are filled in
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True. That written contract is legally enforceable. The document can be presented in court! You signed it!
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How does a unilateral contract differ from a bilateral contract?
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A unilateral contract guarantees goods or services from one party, but does not legally bind the other party to do anything. In a bilateral contract there is a mutual guarantee.
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How does a unilateral contract differ from a bilateral contract?
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A unilateral contract guarantees goods or services from one party, but does not legally bind the other party to do anything. In a bilateral contract there is a mutual guarantee.
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According to he new health care bill, by what year are the insurance companies forbidden from decline health care coverage to a person on the grounds of their pre-existing condition?
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2014
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According to he new health care bill, by what year are the insurance companies forbidden from decline health care coverage to a person on the grounds of their pre-existing condition?
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2014
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What is the policy on abortion, as covered by the new health care plan?
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Government funds cannot be used for abortion (even if through an employer) unless in the case of rape, abortion, or danger to the mother
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What is a 403b?
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The equivalent of a 401k for non-profit organizations.
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How long should you lease a car for?
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No more than 4 years; usually 3 is good. Never get a 5-year loan, because your car will have depreciated too much, and you'll have to pay a lot
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What should you NEVER compromise on while home shopping?
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LOCATION
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True or false: It is important to research property taxes and insurance before purchasing a home, because these can add a big annual cost to you
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True
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If you refinance your mortgage with a lender, who pays for the re-appraisal?
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You do.
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How does an adjustable rate mortgage work?
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Interest rate fluctuates with some index. Dangerous if interest rates get really high...
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Who gets paid first in the event of a foreclosure?
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The lender for the first mortgage
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True or false: With the new health care bill, pharmaceutical companies still have ways to protect their product
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True. The bill allows pharmaceutical companies 12-year patent protection and the right to continue bribing generic companies to delay release of the generic version
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True or false: Under the new healthcare bill, the government pays the most money to pharmaceuticals companies
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True! Medicare cannot negotiate with big pharma.
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True or False: Employee contributions to the DBK plan are tax-deductible.
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True
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True or false: Once you've arranged for a trade-in at a dealership you are bound to give them your old car
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False. You can give them a check for the agreed-upon price. This is something you'd do if, say, you got a better offer.
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True or false: Used cars can be covered by warrantees
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True
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True or false: As a rule, it is better to buy a car from a dealer, because they're professionals.
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False. There is no set rule about whether you should buy your car from an individual or a dealer.
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How do you calculate the value you're borrowing to finance a leased car?
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Subtract the residual cost from the capitalized cost.
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True or false: Student loan payments are tracked by credit reporting agencies
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True
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What is an "exit strategy" in business?
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How do I get my money and get out?
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What is the first thing that you need when starting a business?
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An idea. Ideas are free...but a unique idea isn't always a good one. And a good idea won't always sell.
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Define: depreciation
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Deduction reflecting the gradual loss of value of a business property due to wear-and-tear
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What is the depreciation pattern of a real estate property?
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Straight-line (same amount of purchase price each year)
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What is a 1031 exchange?
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Allows real estate investors to "trade" equity assuming that the value/debt incurred because of acquiring the new property is as least as much as that of the old
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In which step is the money made in a real estate investment?
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When you buy a property.
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Which major factors increase and decrease the cost basis of a property?
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Increase: Capital improvements
Decrease: Depreciation |
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What is a REIT?
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Real estate investment trust: Professionally-managed pool of money used to invest in (buy/lend against) real-estate. They are required to distribute 90% of income in order to pay no tax
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Define: Co-insurance
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The % amount that you pay under major medical insurance once the deductible is met (usu. 20-25%)
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Define: Deductible
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The amount you pay each year in medical expenses before insurance makes any payment (higher deductibles correspond to lower-cost plans)
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Why was there such a large range of health care policies (specifically what they cover) available currently?
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Because health care was under state law
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Define: Cobra
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Can carry your former employer's group health care plan over for 18 months following termination of a job, but at an individual rate
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Define: HMO
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Health-maintenance organizations (e.g. Kaiser) have their own hospitals and doctors, etc. that you can use for little-to-no cost, but don't have good coverage outside of these
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Define: PPO
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Preferred-provider organizations allow you to choose from a selection of health providers who have contracts with the insurance organization. The most important part of this plan are these contracts, which give a HUGE discount.
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How does a health savings account differ from a flexible savings account?
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The former are tax-sheltered accounts for health care funds (used in conjunction with high-deductible plans) that may be purchased individually or through an employer, whereas the latter are employer-sponsored programs in which pre-tax money is deducted from your pay check at an amount you specify to medical expenses, but anything not spent is lost.
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True or false: It is better to pay hospital bills before leaving the hospital, for the expediency
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False. They are full of errors and try to tack you with tons of stupid fees. Need to look it over later with your insurance company.
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What does homeowner's insurance cover?
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Plans are variable, but general protects belongings and absorbs liability for damage/injury done by your belongings. Generally gross negligence and acts of nature are not covered or require premiums.
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Does Sally Mae still write student loans?
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No
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How are premiums for term insurance calculated?
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Based on age and lifestyle (what are your odds of dying?). It's really just death insurance.
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What is whole life insurance?
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A more costly plan that combines term life insurance with a savings portion. Not favored, as you can get the term life insurance plan and a retirement account.
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What is the most important factor in selecting disability insurance?
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The definition of "disability"
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True or False: Disability insurance covers you if you've lost your job due to an accident or illness
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False. You must be employed to be covered by disability insurance
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Define: workman's compensation insurance
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Employer-covered insurance against work-related injury/illness
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What does California State diability insurance cover?
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Covers non-work disability that causes you to miss work. Paid for by employee by payroll deduction.
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Define: DBK plan
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A blend between a benefit plan and a 401K
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Define: Benefit pension plan
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Guaranteed monthly payment for as long as they live
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True or False: There is no standard rental agreement provided by the state
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True! Read everything carefully
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