FIN3140 Test 2 Study Guide Spending secret to being rich Spend less than you make don t enjoy the buying of things instead enjoy what you buy Conscious Spending budgeting planning how you spend your ahead of time is key fight social pressure spending do not buy something if you have any hesitation about it buy generics when possible inexpensive things add up Total Cost the total cost of something ex a printer cost of a printer is cheap but you must factor in the costs for the expensive inks Impulse Buying and Hidden Costs too cut costs focus on 2 areas where you spend the most money and track them tips for impulse shoppers 1 leave price tags on items save receipts 2 delay purchases 3 remember interest payments they result in items costing more money 4 remind yourself of the opportunity costs of your purchase Envelope method after cashing your check divide up your for things that you MUST pay rent utilities Put that money in an envelope and anything you have left you can budget it Handling Money don t cut out REDUCE set priorities expect unexpected have emergency fund examine committed expenses If you have serious debt issues house car Saving Money Saving Young It is better to save young than to save when you are old because you will end up saving more money Ex 7 annual rate of return when you retire at 67 20yr old invests 2 000 for 10yrs investing 20 000 totally VS 30yr old invests 2 000 for 25yrs investing 50 000 totally at age 67 the 20yr old saves MORE 337 774 the 30yr old save LESS 284 898 this is because the 20yr old has had more time for compounding to occur Saving and Wise Spending don t increase spending when you get a raise etc once you have finished paying off a loan continue making payments as if you were still making loan payments but instead put them into your savings divide into pools review automatic payments check bundled payments ex Comcast bill you pay for internet and cable but what else do you pay for maybe an unwanted sports package or HBO on demand examine insurance needs Insurance Health car home disability Disability Insurance this is necessary depending on the job that you have You must consider the job that you have and decide if you need to be insured Most people are under insured when it comes to disability insurance Ex Surgeon should get disability insurance if something happens to his hands to where he cant work he can be insured for it Shared Risk how much can you pay for w o insurance Ex you can self insure 5 000 if you get into a car crash but that s ALL Therefore you would get a 5 000 deductible Choosing deductibles how much insurance is enough Everyone is different look at a potential financial disaster that could happen to you and insure yourself against it if you cannot afford the disaster If you can afford it DON T insure Life Insurance protects dependents in the event that someone dies Ex a college student does not need life insurance they have no dependents Ex two young parents need life insurance their child relies upon them to survive If they died what would happen to their child w o life insurance Ex an elderly retired couple doesn t need life insurance their children are no longer dependent on them and they have hopefully saved up enough money in case of any disasters 1 Term insurance Pure life insurance for a term After the term ends life insurance goes away medical examination is required to get a new policy you are ONLY buying PURE life insurance and nothing else Renewable Term Insurance recommended by our professor After a policy ends and the term is up you can renew it without undergoing a medical examination as you age policy payments increase more and become more rapid Inflation a good reason to get renewable term insurance is due to inflation a 1997 policy covering 10 000 will not be a lot of money in 5 yrs If you have term insurance once your life insurance ends you can get a new policy adjusted for inflation you can buy a lot of term insurance cheaply when you are young because your risk of death is low 2 Whole Life Ordinary Life Insurance you are buying life insurance AND cash value a savings portion this is the WORST and most expensive form of life insurance you don t need life insurance for your whole life when you get old your children have grown up and do not depend upon you anymore Cash Value this is a savings portion that comes when you buy whole life ordinary life insurance it is a buildup of the amount over the premium The cash value is above the premium building up a savings and once the premium starts to get rapid and increase faster the savings decreases just as rapidly Advertising Games beware of sale items would you buy it if it wasn t on sale RED TAGS DO NOT EQUATE TO SALES an additional 20 off a 40 off item DOES NOT mean that the item is 60 off beware of dimples on the bottom of packaging the best deals are placed at eye levels on store shelves beware of music smells aisle wandering veggie sprinkling systems Don t Loose Money read fine print don t be stupid and get parking tickets dont pay for things you don t use check bundled services Mortgages Home buying is a LIFE decision between the actual cost price you pay for the house VS the opportunity cost what you could have done with the if you hadn t bought the house Actual Cost Fees House price closing costs maintenance costs landscaping utilities miscellaneous costs taxes fees insurance new additions Benefits of Buying A Home personal satisfaction potential appreciation average 3 4 rise in value tax benefits currently the interest that you pay on your house IS tax deductible this is subject to change however Buying A House Figure out what you can afford bank will look at 1 credit scores 2 current ability to pay 1 Know what you want and PRE qualify for a loan 2 Remember that real estate agents are salesmen agents are typically paid in commission by the seller of the house agents would rather sell a higher priced house cause they d make more commission 3 Negotiations 1 Price this is not the only thing you need to negotiate 2 conditions of the sale 3 moving arrangements when transitioning from house to house inconvenience and costs are created Usually the seller and the buyer can come to a compromise 4 Earnest money money that a serious buyer puts up to buy a house please take the house off the market I genuinely want to buy it here is some money somewhat of a gamble the money is held in trust by a third party like a bank or real estate agent and if the deal