Personal Finance

Life lessonsTaxpayer: “It’s my money!”

Government: “Oh, you think so, huh…?”

Banking• Credit union: depository institution owned by the

members (usually some kind of union). Offer lower fees/rates & higher interest.

• Checking, savings accounts• Loans: borrow $ +interest• Interest: price you pay to borrow their $$$• Simple interest: SI=P+R+T

(principal + interest rate +time)• Compound interest: interest is earned on the principal

PLUS the interest (mortgages, credit cards) [used to be called usury:illegal in Rome & denounced in the Bible!]

Compound interest: $1000 @ 20%(it will eat you alive)

Credit/Investing• Incentive: motivation to invest• Risk/return: high risk, high return; low risk, low return• APR (Annual Percentage Rate): set by the lender for the year• Credit cards: compound interest (!), high interest rates unless

you have good credit (often follows APR—such as 3% above APR)• Stocks: ownership in a corporation• Bonds: promise to repay amount +interest• Mutual funds: company that sells stock in itself & then invests

the $ in other stocks/bonds• 401K: retirement investment account—

tax-deferred until retirement• IRA: (Individual Retirement Account):

retirement account; tax-deferred until retirement (Roth: NOT taxed!)

Only 2 things in life are certain:death & taxes…

• Progressive: higher % of tax as income rises (income tax)• Regressive: higher % tax on lower incomes (sales tax on

food)• Proportional: same % tax on everyone (25%)• Income: tax on your income (ours is progressive)• Sales: local/state/county tax (7% in Henry Co.—not food)• State, federal, county, city/township:• Luxury tax: expensive cars, real estate, jewelry, boats,

airplanes, sports teams, lottery winnings• Inheritance/estate tax: tax in assets/$ of deceased

(“death tax”: now 35%, set to go to 55% if fiscal cliff happens!)

Insurance• Asset protection: methods to protect assets from liability

(mortgages, limited partnerships, trusts, retirement accounts, clothing, personal property, Social Security); protected from bankruptcy, lawsuits

• Home/property: protection for your home, buildings• Automotive: protection for your vehicle[liability: required

by law, protects THEIR car; collision: repairs YOUR car]• Life: insurance in the event of death (but not suicide)• Disability: insurance for physical disability (length varies)• Deductible: amount you pay before the insurance kicks in• Premium: amount you pay per month/quarter/year• Liability: your responsibility in an event