Exam 2 Flashcards
What is quality versus quantity?
Quality:
- Does it give you full use of your abilities and aptitudes?
- Can you find passion in what you do each day?
- Can you make enough money to live the life you want?
Quantity:
- Quantity is not just about money, it is also time
- If not careful, you will spend your life on someone else’s schedule.
- Case Study from MND: tale of two brothers
Net pay vs. Gross Pay?
Net Pay: the amount of pay left after taxes, benefits and other payroll reductions
Gross pay: the amount of pay before taxes, benefits and other payroll reductions
Dr. John and Marianne story?
Dr. John (oncologist) makes $1 million annually. Federal income tax, fica and 401K take away ~42% of his wages. His net wages is $584,340.
Marianne is a school teacher and she makes $45K annually. After all of the taxes, she has $34,058 left. Meaning her net wages is 75.68%
What is the definition of aptitude?
Aptitude is the natural ability to do something.
Why is location important?
- Where you live determines the school system your kids will grow up in.
- Also think about places that are rising in value, can you truly afford to live there?
- Where you live becomes your identity
Public vs. Private Schools?
- The lessons kids learn early on come from what kind of school they attend.
- Tuition, if private the tuition could be crazy expensive
- How will their schooling integrate them into the real world? Will it be a hinderance or a benefit?
What is OPM? Why is it good/bad?
OPM stands for other people’s money.
It’s good because:
- Your parents and/or grandparents want the best education possible and may be willing to pay for it.
- Special needs are very real and it will happen to you.
It’s bad because:
- Control dynamics continue (the strings are attached).
- Destroys incentive.
- Promotes a consumption lifestyle.
- Idle hands is the the Devil’s workshop
- First generation buys it, second pays for it, and third loses it.
What is the importance of budgeting?
Budgeting will help to pay down good debt, saving for retirement/education, giving back, and being good to your loved ones. Spend the rest and enjoy life. You can’t know what your financial situation is if you don’t know how much you are making.
What is Parkinson’s Law? What are some strategies to counteract this law?
This a theory that simply states that expenses rise to meet income.
Strategies that fight this law:
- Wedge strategy: save 50% of all future increases in your income/windfalls.
- Save one income strategy: live now like no one else so you truly can one day live like no one else.
- The key is to not allow your spending to drift up with your income in same proportions.
Net worth calculation:
(Age)(annual income)/10= expected net worth.
PAW vs UAW
PAW- prodigious accumulator of wealth. 2 times the expected net worth
UAW- under accumulator of wealth. Half the expected net worth.
What are assets vs liabilities?
Assets:
- Liquid asset: Easily liquidated at any point in time
- Investment: Stocks; Investments are not as easily spent; May not be ideal to liquidate at a point in time.
- Use Assets: The house that you live in is a use asset, car; You will not make a dime of income off of a use asset.
Liabilities:
- Short-term: Anything that comes due within a year
- Long-term: Anything due after a year
What are assets vs liabilities?
Assets:
- Liquid asset: any asset that is readily available to pay expenses and would have no penalty/taxes owed if needed quickly. (cash on hand, checking/savings)
- Investment: Any asset that is longer term in nature/may be liquid but usually has tax consequences if sold. (stocks/bonds/mutual funds, IRAs/401K)
- Use Assets: any asset that does not generate income. (includes the home)
Liabilities:
- Short-term: Anything that comes due within a year
- Long-term: Anything due after a year
What is your current net worth?
Assets minus liabilities= Net Worth
What are the two strongest forces in the universe?
Time and Compound Interest
Compound Interest: the interest you earn on interest. See how 5% adds each year with $100.
Time: the earlier you invest, the more you will earn over time with inflation. (Alice, Barney and Christopher)
