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Essential Concepts

• A budget is a plan for your money that helps you decide how much to save, spend, and invest.
• Expenses are the money you spend on things you need, and they can be fixed or variable.
• Income is the money you earn from your job, and it can be gross pay (before deductions) or net pay (after deductions).
• Creating a budget helps you manage your money, set goals, and make adjustments as needed.
• Budgeting has advantages like giving a clear view of finances, helping avoid overspending, and assisting with goal setting. However, it also takes time and effort to plan a budget, and strict budgets can be challenging to stick to.
• Budgeting has advantages like giving you a clear view of your finances and helping you avoid overspending.
• Creating a budget involves steps like setting goals, defining categories, adjusting for non-monthly expenses, and addressing unexpected expenses.
• College students can save money by analyzing their spending, creating a budget, cutting down on meal costs, saving on transportation, looking for discounts, and applying for scholarships. These strategies help lower expenses and improve financial well-being.
• Assets are things that have value and can be owned by a person or business, such as money, property, or investments. Liabilities are debts or financial obligations that a person or business owes to others. Net worth is a measure of one’s wealth, calculated by subtracting liabilities from assets. It shows the difference between what you own and what you owe.
  • [latex]\text{Net Worth } = \text{ Assets (Owned) }– \text{Liabilities (Owed)}[/latex]
• Gross income is the total amount of money a person earns before any deductions or taxes are taken out. Adjusted gross income (AGI) is the income left after subtracting certain deductions from gross income. Deductions are specific expenses or contributions that reduce the amount of income subject to taxation.
  • [latex]\text{ Adjusted gross income }= \text{ Gross income }– \text{ Deductions}[/latex]
• Tax exemptions are deductions that lower the amount of income that is taxed. After deducting exemptions from your adjusted gross income (AGI), you get your taxable income, which is the amount on which you pay taxes.
  • [latex]\text{ Taxable income }= \text{ Adjusted gross income }– \text{ Exemptions}[/latex]
• Tax credits are like discounts that directly reduce the amount of taxes you have to pay to the government. They help you save money by lowering your tax liability.
• Your income tax bill and rate depend on how much money you make, with higher incomes usually resulting in higher tax rates, and the tax system has different brackets with varying rates based on your income and filing status.
• FICA taxes, which fund Social Security and Medicare, are separate from federal income tax and amount to [latex]7.65\%[/latex] of your gross pay, with [latex]6.2\%[/latex] going to Social Security and [latex]1.45\%[/latex] going to Medicare, but there is a limit on the amount of earnings subject to Social Security taxation each year.
• Principal refers to the initial amount of money borrowed or invested, while simple interest is the interest that is calculated solely based on the principal amount.
  • [latex]\begin{align}&I={{P}_{0}}r\\&A={{P}_{0}}+I={{P}_{0}}+{{P}_{0}}r={{P}_{0}}(1+r)\\\end{align}[/latex]
• Simple interest over time is for loans to be paid daily, monthly, quarterly, or annual basis.
  • [latex]\begin{align}&I={{P}_{0}}rt\\&A={{P}_{0}}+I={{P}_{0}}+{{P}_{0}}rt={{P}_{0}}(1+rt)\\\end{align}[/latex]
• APR, which stands for Annual Percentage Rate, is used to calculate the interest consumers pay on loans. APY, or Annual Percentage Yield, is used to calculate the interest consumers earn on savings. Interest rates are often given as an APY, which represents the total interest earned or paid in a year.
• Compound interest is when interest is calculated not only on the initial amount of money but also on any accumulated interest. This means that over time, the interest you earn or owe can grow faster because it is added to the original amount. The formula is:
  • [latex]P_{t}=P_{0}\left(1+\frac{r}{n}\right)^{nt}[/latex]
• A savings annuity is a way to save money and earn interest over a long period of time. It involves making regular payments to an insurance company, bank, or other financial institution for a set period. The formula for this is:
  • [latex]P_{t}=\frac{d\left(\left(1+\frac{r}{n}\right)^{nt}-1\right)}{\left(\frac{r}{n}\right)}[/latex]
• A payout annuity is when someone receives regular payments for a certain period of time. Unlike a savings annuity, which involves making regular payments, a payout annuity only requires a one-time investment. The individual can decide how long they want to receive payments, and once that time is over, no more payments are made. The formula for this is:
  • [latex]P_{0}=\frac{d\left(1-\left(1+\frac{r}{n}\right)^{-nt}\right)}{\left(\frac{r}{n}\right)}[/latex]
• Conventional loans, like auto loans and home mortgages, are examples of loans that follow a structured repayment plan. They are different from payday loans or add-on loans because they don’t have upfront interest calculations. The formula for this is:
  • [latex]P_{0}=\frac{d\left(1-\left(1+\frac{r}{n}\right)^{-nt}\right)}{\left(\frac{r}{n}\right)}[/latex]

Glossary

adjusted gross income

commonly referred to as AGI, the total income earned by an individual or household after certain deductions have been subtracted from their gross income

amortization

paying off a debt (often from a loan or mortgage) over time through regular payments

annual percentage rate

APR is for interest paid by consumers on loans

annual percentage yield

APY is for interest paid to consumers on savings

asset

something that a person or a business owns and has value

budget

a specific financial plan for a specified time, consisting of three elements: income, saving and investing, and expenses

compounding

the process where the interest earned on an investment or the interest charged on a loan is added to the principal amount, so that interest can be earned or charged on a larger amount over time

deductions

specific expenses, contributions, or allowances that individuals can subtract from their total income, thereby reducing the amount of income that is subject to taxation

exemptions

reduces the taxable income of individuals or households

fixed expenses

regular expenses that remain the same every month and are required for maintaining a certain standard of living

gross income

the total amount of income or earnings a person receives before any deductions or taxes are taken out

gross pay

the larger paycheck amount that is listed on your pay stub prior to deductions for taxes

liability

something that a person or a business owes to someone else, typically in the form of debt or a financial obligation

net pay

the larger paycheck amount that is listed on your pay stub prior to deductions for taxes

net worth

the total measure of one’s wealth, calculated by subtracting what one owes (liabilities) from what one owns (assets)

payout annuity

allows an individual to receive regular payments, usually on a monthly or yearly basis, for a predetermined period of time

principal

the amount of money that is borrowed or invested

savings annuity

allows an individual to save money and earn interest on a regular basis, typically over a long period of time

simple interest

the interest that is calculated only on the principal amount

tax credits

direct reductions in the amount of tax liability owed to the government

taxable income

the portion of an individual’s income that is subject to taxation

variable expenses

expenses that can fluctuate from month to month or are discretionary in nature

Key Equations

annuity formula

[latex]P_{t}=\frac{d\left(\left(1+\frac{r}{n}\right)^{nt}-1\right)}{\left(\frac{r}{n}\right)}[/latex]

compound interest

[latex]P_{t}=P_{0}\left(1+\frac{r}{n}\right)^{nt}[/latex]

loans formula

[latex]P_{0}=\frac{d\left(1-\left(1+\frac{r}{n}\right)^{-nt}\right)}{\left(\frac{r}{n}\right)}[/latex]

payout annuity formula

[latex]P_{0}=\frac{d\left(1-\left(1+\frac{r}{n}\right)^{-nt}\right)}{\left(\frac{r}{n}\right)}[/latex]

simple interest over time

[latex]\begin{align}&I={{P}_{0}}rt\\&A={{P}_{0}}+I={{P}_{0}}+{{P}_{0}}rt={{P}_{0}}(1+rt)\\\end{align}[/latex]

simple one-time interest

[latex]\begin{align}&I={{P}_{0}}r\\&A={{P}_{0}}+I={{P}_{0}}+{{P}_{0}}r={{P}_{0}}(1+r)\\\end{align}[/latex]

2023 marginal tax rates

Tax Rate	For Single Filers	For Married Individuals Filing Joint Returns	For Heads of Households
[latex]10\%[/latex]	[latex]$0\text{ to } $11,000[/latex]	[latex]$0\text{ to } $22,000[/latex]	[latex]$0\text{ to } $15,700[/latex]
[latex]12\%[/latex]	[latex]$11,000 \text{ to }$44,725[/latex]	[latex]$22,000 \text{ to }$89,450[/latex]	[latex]$15,700 \text{ to }$59,850[/latex]
[latex]22\%[/latex]	[latex]$44,725 \text{ to }$95,375[/latex]	[latex]$89,450 \text{ to }$190,750[/latex]	[latex]$59,850 \text{ to }$95,350[/latex]
[latex]24\%[/latex]	[latex]$95,375 \text{ to }$182,100[/latex]	[latex]$190,750 \text{ to }$364,200[/latex]	[latex]$95,350 \text{ to }$182,100[/latex]
[latex]32\%[/latex]	[latex]$182,100 \text{ to }$231,250[/latex]	[latex]$364,200 \text{ to }$462,500[/latex]	[latex]$182,100 \text{ to }$231,250[/latex]
[latex]35\%[/latex]	[latex]$231,250 \text{ to }$578,125[/latex]	[latex]$462,500 \text{ to }$693,750[/latex]	[latex]$231,250 \text{ to }$578,100[/latex]
[latex]37\%[/latex]	[latex]$578,125[/latex] or more	[latex]$693,750[/latex] or more	[latex]$578,100[/latex] or more

 

2023 FICA tax rates

	Individual (Employee) Rates	Employer Matching Rates	Self-Employed Rates
OASDI Tax Rates	[latex]6.2\%[/latex] on wages below [latex]$160,200[/latex], any wage above [latex]$160,200[/latex] is charged a OASDI tax fee of [latex]$9,932.40[/latex]	[latex]6.2\%[/latex] on wages below [latex]$160,200[/latex], any wage above [latex]$160,200[/latex] is charged a OASDI tax fee of [latex]$9,932.40[/latex]	[latex]12.4\%[/latex]
Medicare Tax Rates	[latex]1.45\%[/latex] on all wages	[latex]1.45\%[/latex] on all wages	[latex]2.90\%[/latex]