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MOS2277 > Midterm I > Flashcards

Midterm I Flashcards

1
Q

The size of your emergency fund depends on: (2)

A
  1. How quickly you can get a new, equal paying job

2. How volatile is your income?

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2
Q

Why is a LOC not an emergency fund?

A

Banks may take away LOC if they find out you’ve lost your job

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3
Q

“I can save more when I earn more, right?”

A

New expenses when you get older so it won’t necessarily be easier to save money

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4
Q

When budgeting, consider what 3 things before you budget?

A

Debt, Emergency Fund, Long term investing

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5
Q

Why should you file a tax return? (6)

A
  1. You may have a refund
  2. Keep the CRA out of your life
  3. You get a free credit refund each year (GST/HST) so you might as well!
  4. If you have a Non-capital loss you can carry it forward in the future
  5. Tuition, textbooks can be transferred to parents/grandparents OR carried forward
  6. Make RRSP room for future contributions (as long as you had income)
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6
Q

Steps to Calculating Income Tax (8)

A 
Calculate Total Income
Deductions
= Taxable Income
Net Federal Tax Payable (Tax credits are here)
Net Provincial Tax Payable (Tax credits are here)
= Total Tax Payable
Determine Total Tax already Paid
= Refund OR Balance Owing
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7
Q

Capital Gain/Loss =

A

Proceeds from sale - Costs to sell - adj. cost base

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8
Q

Adj cost base =

A

Cost of Property + Expenses to acquire (commission)

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9
Q

Cost of Property =

A

Actual Cost + Capex (NOT REPAIRS, ONLY IMPROVEMENTS)

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10
Q

Examples of Deductions: (7/8)

A 
RRSP/RRP Contributions
Union Dues
Support Payments
Carrying Charges
Child Care X
Employment X
Moving X
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11
Q

Canada has a _____ tax system

A

Progressive: The higher one’s income, the higher % paid in taxes

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12
Q

What is the difference b/n Marginal Tax rate and Average Tax Rate?

A

Marginal tax rate is the % of tax paid on the next dollar of taxable income

Average tax rate is the tax one pays as a total % of one’s total income

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13
Q

Examples of Tax Credits: (10)

A 
Basic Personal Amount
REFUNDABLE: Medical X
REFUNDABLE: Donations
REFUNDABLE: Tuition/EducationBooks
CPP contributions
EI contributions
Canada Employment Amount
Interest Paid on Student Loans
Public Transit
Home Buyer's Amount
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14
Q

How much do you pay when you sell your principal residence?

A

0

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15
Q

To qualify as a Principal Residence, (3)

A
  • You must own the property (or jointly own)
  • You, your spouse, or your children must have lived in it at some point
  • You designate the property as your principal residence
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16
Q

Difference b/n Refundable and Non-refundable Tax Credit?

A

Refundable Tax Credits carry forward whereas Non-refundable Tax Credits are one-time credits that do not carry forward
(both used to reduce tax liability)

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17
Q

Differences b/n RRSP and TFSA? (3)

A 
RRSP = Pay taxes when withdrawing
TFSA = Pay no taxes when withdrawing
therefore...
RRSP = Tax Deduction!
TFSA = No tax deduction
RRSP = Contribution Room permanently Lost if money is taken out
TFSA = Contribution room not permanently lost (you have to wait until next calendar yr to replace it though)
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18
Q

What are the two rules of credit?

A

Use it as a tool: use it if it makes you wealthier

W/ the exception of your home and massive student debt, your first goal is to get our of debt asap

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19
Q

When rich ppl say “I can afford it” they mean…

When poor ppl say “they can afford it” they mean..

A

They can pay for it today

They think they can make the payments

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20
Q

Advantages of a credit card (4)

A

Easy to use
Keeps record of expenses
Helps build credit score
“Rewards”

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21
Q

Disadvantages of a credit card (4)

A

We spend more using plastic
We spend more to get “points”
Difficult to know how much you have left to spend in your budget
Easy to go into debt by “justifying” using credit

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22
Q

What makes up you credit score? (5)

A 
Payment history**Biggest
Amount of Credit Owing**2nd Biggest
Type/Variety of Credit
Length of History
Seeking and Acquiring Credit
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23
Q

What are the 2 pros and 2 cons of a condo?

A

No need to maintain
Condo corp does major repairs (windows, roof shingles)

Monthly condo fee + “special assessment for major repairs
Your $$ pays for condo workers and repairs anyway

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24
Q

Price appreciation rule:

A

The more expensive the property, the faster it will increase in value

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25
Q

What are the important conditions (conditional on…) to the final purchase of a house? (3)

A

Conditional on Financing, home inspection, Insurance

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26
Q

What Mortgage Options do you have? (4)

A

Fixed vs Variable
Length of Term (length of fixed or variable rate)
Length of Amortization (yrs of mortgage)
Payment Frequency

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27
Q

Mortgage affordability rules: (2)

A

Monthly housing costs < 32% gross household income

Monthly debt load < 40% gross household income

28
Q

Why holding a mortgage into retirement is good: (5)

A
  • Equity in your home can’t be invested
  • Mortgage is the cheapest debt you can get. Pay 3%, get 8% in the stock market.
  • A fixed mortgage rate guarantees payments are an increasingly lower % of your income as your investments grow
  • You can extend your mortgage without selling your house
  • You are more liquid (no money “trapped in your living room”
29
Q

What is a starter home? Why do they not make financial sense?

A

When you move into a small, cheaper home now until you can afford to live in your forever home. Doesn’t make financial sense because of the many costs associated with buying/selling real-estate

30
Q

Rental Property PROS: (4)

Rental Property CONS: (5)

A
  • Personally Managed
  • Steady cashflow that can be used immediately
  • CAN beat the stock market
  • Can borrow to invest (leverage)
Can be risky to borrow and invest
Time/Attention (pain)
Bad tenants
Laws not in your favour as a landlord
Lack of diversification (more of a business than an investment)
31
Q

What is the primary function of insurance?

A

To maintain one’s existing level of wealth

32
Q

What is self insuring?

A

When you don’t buy insurance and cover any loss personally

33
Q

What is your insurance goal?

A

Buy insurance that you need at the lowest price possible (from a reputable company)

34
Q

Risk Management Steps (3)

A

Recognize Risks
Decide to protect or accept risks
Decide on Amount of coverage

35
Q

Risk Management Alternatives (4)

A

Avoid Risk
Reduce Risk
Accept Risk
Share Risk

36
Q

When would you Accept Risk? (2)

A

Low chances, low potential financial loss

37
Q

How to Insurance companies make money (formula)?

A

Profit = Premiums + Investment Earnings - (Payout Claims + Operating Expenses)

38
Q

Types if Auto Insurance (3)

A

Liability, Collision, Comprehensive

39
Q

Liability Insurance sections (4)

A

3rd party liability
Direct Compensation - Property Damage
Uninsured Automobile Coverage
Accident Benefits Coverage

40
Q

What is an insurance premium?

A

The cost of obtaining insurance

41
Q

3rd party liability

A

Covers 3rd party when…
You are responsible for an accident
causes injury/fatality OR damage to someone’s property

(can’t see in the rain and hit someone OR hit a parked car)

42
Q

Direct Compensation - Property Damage

A

When you are not the only one at fault.
At least one other vehicle is Insured.
Repairs all vehicles + all property damaged

(car crash)

43
Q

Accident Benefits Coverage

A

Covers income replacement, medical X, Funeral X, Rehab costs

44
Q

Factors affecting our Auto Insurance Premiums

A
  • Likelihood you will submit a claim: AGE/SEX IS THE BIGGEST DETERMINANT
  • Est. cost to cover claims
  • Amount of deductible
  • Driver training
  • driving record
  • how you use your vehicle
  • value of car
  • car’s repair record
  • location
  • insurance company you go with
45
Q

What are the 2 types of Homeowner’s insurance?

A

All perils coverage DEFINE

Named perils coverage DEFINE

46
Q

What is (Actual) Cash-Value Policy?

A

Pays you value of damaged property after depreciation

47
Q

What is Replacement Cost Policy

A

Pays you cost of replacing damaged property with an item of similar brand and quality

48
Q

3 parts of Personal Property (Contents)

A
  • Covers personal assets
  • = % of dwelling value
  • Home inventory: detailed info about your personal property that can be used when filing a claim
49
Q

Homeowner’s Insurance: Liability

What are the true statements about Liability? (3)

A
  • Covers you if sued as a result of sth occurring on your property
  • Extends to events away from home
  • Coverage amount linked to value of your home
  • Medical payments may be covered
50
Q

What are the biggest /smallest homeowner insurance claims?

A

Fire + Lighting / Theft + bodily injury

51
Q

Factors that affect homeowner’s insurance premiums: (5)

A
  • Value of Home
  • Location
  • Deductible
  • Degree of Protection
  • Discounts
52
Q

What is Umbrella Personal Liability Policy? And why is it good?

A

Supplement to auto/home insurance for ADDITIONAL (does not replace) insurance. It is cheap/cost-effective.

53
Q

Insured Health Care Services:

A

Medically necessary hospital, physician, and surgical-dental services provided to insured persons

54
Q

Insured person:

A

An eligible resident of a province

55
Q

What is the role of private health insurance?

A

For individuals not insurable by a group plan and

for those with insufficient coverage in their province

56
Q

In which insurance do benefits stop when you return tp work?

A

Disability

57
Q

What is the difference between Disability Insurance and Critical Illness Insurance?

A
  1. CI plays lump sum while DI pays monthly

2. CI provides coverage for insured conditions where DI covers any injury/illness that prevents one from working

58
Q

Why does Barry have mixed feelings about Critical Illness Insurance? (3)

A 
Sick = gvmt health insurance
Death = Life Insurance
Disability = Disability Insurance
59
Q

What is Long Term care Insurance?

A

For long-term health conditions where one needs help with everyday tasks

60
Q

Special Provision about Long-term Care Insurance: (3)

A

Types of services, Continued coverage (despite not having to pay premium), Inflation Adjustment

61
Q

What is the primary function of life insurance?

A

To provide financial security for your dependants. Therefore buy insurance you need for as cheaply as possible from a reputable insurance company

62
Q

Term vs Permanent Life Insurance

A

Term: Life insurance provided over a period of time and does not build cash value
Permanent: insurance provided as long as premiums are paid. Provides cash value which is invested by the insurance company on behalf of the policy owner

63
Q

What are the selling points for Permanent life insurance?

A
  • Term life insurance wastes money if you don’t use it!

Instead, you can get a cash-value policy and invest your money

64
Q

Death Benefit:

A

TAX FREE $$ paid to beneficiary of policy owner

65
Q

What provides the Death Benefit? (pure cost of dying)

A

Cost of Insurance

MOS2277 (2 decks)

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