From Khan Academy
Compound Interest (10% example): $100, $110, $121, ... $100(1.1)^n$
Rule of 72 - Formula to get the amount of time to double the money.
72 / % compound annually = years
Interest Rate - Money charged on money you borrow.
FICO Algorithm - used to determine the credit of someone
Three biggest credit bureaus that determine the credit of someone: Transunion, Experion, and Equifax.
APR - a numeric representation of your interest rate. If you don't pay balances off your credit card each month, you pay interest.
High Rate Method - If paying debt, pay the one with the highest APR first.
Chapter 7 Bankruptcy Straight - If you can't pay, you can give your assets to your creditor, but it will be on your statement for 10 years. Kind of like a fresh start.
Chapter 13 Reorganization - There will be a little bit of negotiation with creditors, and you pay back 3-5 years. This also shows on your credit report for 7 years after you pay.
Traditional IRA (Individual Retirement Account) - you can set aside part of your income for retirement. This amount will not be taxed!
If you pull out from IRA before 59.5, you pay penalties & taxes. However, you could buy securities within the IRA for investment.
Once you are over 60, if you want to withdraw, you don't have to pay penalties, but you still have to pay taxes; tax is likely less than before since you are older.
Roth IRA - Taxes are not deferred in Roth IRA, but earnings are not taxed. However, when withdrawing money, you are not taxed.
| Traditional | Roth | |
|---|---|---|
| Tax | Deferred | Not deferred |
| Earnings are not taxed while in account | Yes | Yes |
| Older than 59.5 withdrawal | Ordinary income tax | Not taxed |
| Early withdrawal | 10% penalty + taxes | No taxes or penalty on principal 10% penalty & taxes on earnings |
Generally, if you want more flexibility especially before 60, Roth IRA is better. However, to maximize returns, traditional is better. Also, it will depend on the tax bracket you are in after retirement.
401 (k) - Similar to traditional IRA, but they have higher limit and are usually organized by your employer, which specifies the type of investments you can make. Employer can also "match", which means for every dollar you put in they might put in some too. You can also borrow from 401 (k) with no penalty, but need to pay interest.