ASSEB HS Financial Literacy cheat sheet

Net income equals gross income minus mandatory deductions (federal and state withholding, FICA, and other payroll deductions).

A zero-based budget assigns every unit of income to a category (spending, saving, or debt repayment) so that income minus outflows equals zero.

The 50/30/20 rule allocates 50% of net income to needs, 30% to wants, and 20% to saving and debt repayment above minimums.

Discretionary spending is any outflow not required for housing, food, utilities, insurance, transportation, or minimum debt payments.

Emergency fund target is typically three to six months of essential expenses, held in liquid accounts.

A budget variance is actual spending minus planned spending; a negative variance means the category was overspent.

Fixed expenses stay constant month to month (rent, insurance premiums); variable expenses change (utilities, groceries, fuel).

Cash-flow statement tracks inflows and outflows over a period; a surplus adds to net worth, a deficit reduces it.

Payroll deductions reduce take-home pay before the budget is built, so budgets should be based on net, not gross, income.

Gross pay is hours worked times hourly rate; overtime is generally 1.5 times the regular rate for hours over 40 in a workweek under the FLSA.

FICA consists of Social Security (6.2% employee share up to the annual wage base) and Medicare (1.45%, plus 0.9% additional Medicare tax above high-income thresholds).

Federal income tax is progressive: marginal rates apply to brackets, while the effective rate equals total tax divided by taxable income.

Taxable income equals gross income minus above-the-line adjustments, the standard or itemized deduction, and qualified business income deductions.

A W-4 directs withholding; claiming fewer allowances or entering extra withholding increases tax withheld per paycheck.

A W-2 reports wages and withholding from an employer; a 1099-NEC reports nonemployee compensation, on which self-employment tax applies.

Self-employment tax is 15.3% on net self-employment earnings, with half deductible against income tax.

Filing status (single, married filing jointly, married filing separately, head of household) determines bracket thresholds and standard deduction amounts.

A tax credit reduces tax owed dollar for dollar; a deduction reduces taxable income, so its value equals the deduction times the marginal rate.

Compound interest formula: A = P(1 + r/n)^(nt), where n is compounding periods per year and t is years.

Rule of 72: years to double equals 72 divided by the annual percentage return.

Future value of an ordinary annuity: FV = PMT × [((1 + r)^n − 1) / r].

Simple interest equals principal × rate × time; compound interest grows faster because interest earns interest.

Diversification reduces unsystematic (company-specific) risk but not systematic market risk.

Risk-return tradeoff: higher expected return requires accepting greater volatility or uncertainty.

Inflation erodes purchasing power; a real return equals nominal return minus inflation (approximately).

A stock is an ownership claim with residual claim on assets; a bond is a loan with a fixed coupon and priority claim.

Employer 401(k) matching contributions are an immediate return equal to the match percentage on contributions made.

APR expresses the annualized cost of credit including fees; the periodic rate equals APR divided by periods per year.

Credit utilization equals balances divided by total credit limits; keeping it below 30% supports higher credit scores.

Minimum payments on revolving debt extend repayment dramatically because most of the payment covers interest first.

A credit score (FICO range 300–850) weighs payment history, amounts owed, length of history, new credit, and credit mix.

Installment credit (auto, mortgage) has fixed payments over a set term; revolving credit (cards) has variable balances and no fixed payoff date.

Debt avalanche pays highest-APR balances first to minimize total interest; debt snowball pays smallest balances first for behavioral momentum.

A secured card requires a cash deposit collateralizing the credit line; an unsecured card does not.

Late payment fees, over-limit fees, and penalty APRs raise the effective cost of borrowing above the advertised rate.

Co-signing makes the co-signer legally liable for the debt if the primary borrower defaults.

Insurance transfers risk by pooling premiums from many policyholders to pay covered losses.

A deductible is the amount the insured pays before coverage applies; a higher deductible generally lowers the premium.

A copayment is a fixed dollar amount per service; coinsurance is a percentage of costs shared after the deductible.

Premium is the amount paid for coverage; it is not refundable in most policies except where specified.

Term life insurance pays a death benefit for a set period with no cash value; whole life combines coverage with cash value.

Liability coverage pays for damage or injury the insured causes to others; collision and comprehensive cover damage to the insured's own vehicle.

Renters insurance covers personal property and liability, not the building structure, which the landlord insures.

An emergency fund and adequate insurance are complementary: insurance handles large rare losses, savings handle small frequent ones.

A policy limit is the maximum the insurer will pay; losses above the limit are the insured's responsibility.

The Fair Credit Reporting Act allows consumers to dispute inaccurate credit report information and obtain free annual reports.

The Truth in Lending Act requires disclosure of APR, finance charges, and total payments before credit is extended.

The Fair Debt Collection Practices Act restricts collector conduct, including calling before 8 a.m. or after 9 p.m. and contacting third parties.

The FTC Cooling-Off Rule gives three business days to cancel certain sales made at the buyer's home or away from a permanent place of business.

Phishing uses messages impersonating legitimate institutions to obtain credentials; legitimate organizations do not request passwords or full account numbers by email.

Advance-fee fraud requires payment upfront for a promised loan, prize, or job that does not exist.

Opportunity cost is the value of the next-best alternative forgone when a choice is made.

Marginal analysis compares the additional benefit of one more unit against its additional cost; choose when marginal benefit exceeds marginal cost.

Sunk costs are already incurred and should not influence forward-looking financial decisions.