FNCE 2820 EXAM STUDY GUIDE
50-30-20 budgeting - Answer 50% goes to needs
- housing, groceries, utilities, transportation, bills, insurance, and debt payments
30% goes to wants
- shopping, entertainment, restaurants, and hobbies
20% goes to savings
- loans, credit cards, savings
Advantages of checking accounts - Answer 1. liquidity - quick and easy way to access
cash
2. direct deposit of paychecks - a way for an employer to transfer your earnings directly
to your bank or credit union account
3. FDIC insurance
- protection of all deposits up to $250,000 in case the bank or credit union fails
4. debit cards
- usually comes with a checking account. Acts an an electronic version of a check
Creating Wealth - Answer Need surplus (money left over after all your expenses have
been paid)
Income minus living expenses
Savings Ratio - Answer Savings / Income
Credit - Answer Credit reports and credit scores = 300 to 850
- low is bad, high is good
- score suggests you are a "better" risk aka more likely to pay back loan
Factors influencing credit score - Answer payment history, amount of credit, length of
credit, types of credit
How to build a good credit score - Answer Strategy :
1. open a line of credit; for example: apply for and obtain a credit card
2. buy necessary items like groceries and gas
3. with the first monthly statement, pay off the balance
, 4. repeat this process each month - keeping the account active
How to keep a good credit score - Answer 1. try never to miss a payment. If you do miss
one, get and stay current as quickly as possible.
- Basic rules to optimize your credit score
1. keep revolving debt balance low
2. apply the ratio rule (credit usage ratio)
3. avoid applying for lots of new credit cards at one time
4. vary your credit mix
Credit report - Answer does NOT show your net worth
- has information about your credit activity and current credit situation (loan paying
history and status of credit accounts
- individuals with low credit scores are MORE likely to be : charged higher interest rates
on loans and pay higher insurance premiums
A credit report is best defined by which of the following statements? - Answer A
summary of an individual's credit history
Housing and. car purchases - Answer 1. buy a used car (depreciation)
2. try not to take out a loan for a car
vehicle purchase terms - Answer - principal : amount you borrow to buy a car loan for a
car
- interest : amount you owe
- fees : what other fees are there
APY vs APR - Answer Annual Percentage Yield vs. Annual Percentage Rate
Housing terms - Answer Loans :
1. principal is the amount you borrowed
2. interest is the amount you pay
*** 15 vs. 30 year loans
with a 15 year loan you typically pay HALF of what you do with a 30 year loan
Housing terms - Answer if your goal is to minimize the total interest you pay on a
mortgage you should consider a 15 year mortgage
50-30-20 budgeting - Answer 50% goes to needs
- housing, groceries, utilities, transportation, bills, insurance, and debt payments
30% goes to wants
- shopping, entertainment, restaurants, and hobbies
20% goes to savings
- loans, credit cards, savings
Advantages of checking accounts - Answer 1. liquidity - quick and easy way to access
cash
2. direct deposit of paychecks - a way for an employer to transfer your earnings directly
to your bank or credit union account
3. FDIC insurance
- protection of all deposits up to $250,000 in case the bank or credit union fails
4. debit cards
- usually comes with a checking account. Acts an an electronic version of a check
Creating Wealth - Answer Need surplus (money left over after all your expenses have
been paid)
Income minus living expenses
Savings Ratio - Answer Savings / Income
Credit - Answer Credit reports and credit scores = 300 to 850
- low is bad, high is good
- score suggests you are a "better" risk aka more likely to pay back loan
Factors influencing credit score - Answer payment history, amount of credit, length of
credit, types of credit
How to build a good credit score - Answer Strategy :
1. open a line of credit; for example: apply for and obtain a credit card
2. buy necessary items like groceries and gas
3. with the first monthly statement, pay off the balance
, 4. repeat this process each month - keeping the account active
How to keep a good credit score - Answer 1. try never to miss a payment. If you do miss
one, get and stay current as quickly as possible.
- Basic rules to optimize your credit score
1. keep revolving debt balance low
2. apply the ratio rule (credit usage ratio)
3. avoid applying for lots of new credit cards at one time
4. vary your credit mix
Credit report - Answer does NOT show your net worth
- has information about your credit activity and current credit situation (loan paying
history and status of credit accounts
- individuals with low credit scores are MORE likely to be : charged higher interest rates
on loans and pay higher insurance premiums
A credit report is best defined by which of the following statements? - Answer A
summary of an individual's credit history
Housing and. car purchases - Answer 1. buy a used car (depreciation)
2. try not to take out a loan for a car
vehicle purchase terms - Answer - principal : amount you borrow to buy a car loan for a
car
- interest : amount you owe
- fees : what other fees are there
APY vs APR - Answer Annual Percentage Yield vs. Annual Percentage Rate
Housing terms - Answer Loans :
1. principal is the amount you borrowed
2. interest is the amount you pay
*** 15 vs. 30 year loans
with a 15 year loan you typically pay HALF of what you do with a 30 year loan
Housing terms - Answer if your goal is to minimize the total interest you pay on a
mortgage you should consider a 15 year mortgage
