Bankruptcy
What are two reasons that people could choose to file for bankruptcy?
- High Medical Bills
-Uncontrollable credit card debt
- unexpected emergency expenses
- Job loss
What are the 5 C's of credit?
Character, Capacity, Capital, Conditions, Collateral
50/30/20, pay yourself first, zero based budgeting, envelope cash system
Joe has a monthly income of $4,000 after taxes. Using the 50/30/20 rule, how much should he allocate to his needs?
$2,000
Emergency fund
A pool of cash set aside in a safe, accessible bank account to pay for unexpected expenses of financial crises
Name 3 types of bankruptcy we discussed in class
Chapter 7, chapter 11, Chapter 12
Which of the 5 C's uses debt to income ratio?
Capacity
What is the difference between a need and a want? Give an example for both
Need: Something that you need to live ex: Water, food, shelter
Want: Something that is not necessary for survival, but makes the quality of life better
Ex: movie tickets, candy
Who will have more:
A 20 year old that starts invest $300 monthly in a retirement account earning 7% annual interest
A 40 year old investing $400 monthly in a retirement account earning 7% annual interest
the twenty year old
401K
An employer sponsored retirement savings plan that allows you to put a portion of your paycheck directly into investments with special tax breaks
If a retail store is going to close, and chooses to declare bankruptcy and has to sell all inventory to repay creditors, what kind of bankruptcy would they choose?
Chapter 7
What is the range for a credit score?
300-850
In the 50/30/20, what goes into each category?
50- needs
30- wants
20- savings
Tell me how many of the 5 C's are displayed in this scenario. Make sure to name them.
Casey has a history of paying her credit card a couple months late, but she wants to take a loan out for a house and is going to use the house to back the loan. Because of the current economy and rising inflation, the bank is pretty hesitant to lend her money.
Impulse buying
Making an unplanned, spontaneous purchase driven by a sudden urge or emotions rather than logical thought
A person keeps their property while following a repayment plan
Chapter 13
Name the three credit unions
Experian, Transunion, Equifax
What does the acronym S.M.A.R.T. goals stand for?
s: specific
m: measurable
a: attainable
r: Relevant
T: time
A local toy store is losing money, and really only makes a lot of money around Christmas time. Because of this, they decide they are going to have to declare bankruptcy and liquidate their assets. What kind of bankruptcy should they declare?
Chapter 7
Sinking fund
A pool of money set aside gradually over time to pay for a specific, planned future expense
Define the following bankruptcy types:
Chapter 7
Chapter 11
Chapter 13
Chapter 7: Liquidation bankruptcy, individuals with low income or failing business ready to shut down. Sells property to pay off creditors.
Chapter 11: Reorganization bankruptcy for business's, a business can declare bankruptcy, but is still operating normally, just reorganizing debt
Chapter 13: Repayment plan, people have steady, regular income and a manageable debt plan
For the following scenarios, write which of the 5 C's it is.
1. George has never missed a credit card payment
2. Inflation heightens and banks lend out less money
3. Harold uses a car to back an auto loan
1. Character
2. Conditions
3. Collateral
Give me an example of a SMART financial goal.
I will save $1,200 for an emergency fund by the end of the year by setting aside $100 each month
Kylie has issues saving money up before she spends all of it. She really wants to save up money for a down payment on a car, but she can't figure out a good strategy to use. What budgeting strategy would be the best for her to use? Why?
Pay yourself first because she has issues saving money before spending it all
Fixed Expense
A recurring cost that stays the same in amount and frequency over a defined period, regardless of changes in usage, production, or sales volume