Title: Personal Finance — LearnCoachAssist

Q: What is personal finance?
A: Personal finance refers to the management of an individual's or household's financial activities, including budgeting, saving, investing, and debt management to achieve financial goals and security.

Q: What are the key pillars of personal finance?
A: The key pillars are earning income, budgeting expenses, saving money, managing debt, investing wisely, and planning for retirement and insurance needs.

Q: What is a budget?
A: A budget is a financial plan that estimates anticipated income and allocates it to expenses, savings, and debt repayment over a specific period, typically monthly.

Q: What is the 50/30/20 budgeting rule?
A: The 50/30/20 rule recommends allocating 50% of after-tax income to needs (essentials), 30% to wants (discretionary spending), and 20% to savings and debt repayment.

Q: What is net worth?
A: Net worth is calculated as total assets (cash, investments, property) minus total liabilities (debts, loans), providing a snapshot of financial health.

Q: What is an emergency fund?
A: An emergency fund is a cash reserve covering 3-6 months of essential living expenses to protect against unexpected events like job loss or medical emergencies.

Q: What is the difference between a checking account and a savings account?
A: A checking account is designed for frequent transactions with low interest and check-writing capabilities, while a savings account earns higher interest but limits withdrawals to promote saving.

Q: What is compound interest?
A: Compound interest is the interest earned on both the initial principal and previously accumulated interest, leading to exponential growth over time; it's often called 'interest on interest'.

Q: What is simple interest?
A: Simple interest is calculated only on the original principal amount, resulting in linear growth without compounding effects.

Q: Why prioritize paying off high-interest debt?
A: High-interest debt, like credit card balances at 15-25% APR, grows rapidly and consumes income; eliminating it first saves money and boosts financial flexibility for saving and investing.

Q: What is a credit score?
A: A credit score is a three-digit number (typically 300-850) that summarizes creditworthiness based on payment history, credit utilization, and other factors, used by lenders to assess risk.

Q: What are the main factors influencing a FICO credit score?
A: Key factors include payment history (35%), amounts owed/credit utilization (30%), length of credit history (15%), new credit (10%), and credit mix (10%).

Q: What is the difference between good debt and bad debt?
A: Good debt builds wealth or improves earning potential (e.g., mortgage, student loans), while bad debt finances depreciating assets or consumption without returns (e.g., high-interest credit card debt).

Q: What is a credit card?
A: A credit card allows borrowing up to a limit for purchases, repaid monthly; it builds credit if used responsibly but incurs high interest (APR 15-25%) if balances carry over.

Q: What is a secured credit card?
A: A secured credit card requires a cash deposit as collateral, which sets the credit limit, making it ideal for building credit with poor history while minimizing issuer risk.

Q: What are student loans?
A: Student loans are borrowed funds for education expenses, with federal options offering fixed rates and forgiveness programs, versus private loans with variable rates and stricter terms.

Q: What is a mortgage?
A: A mortgage is a loan secured by real property to purchase a home, repaid over 15-30 years with principal, interest, taxes, and insurance (PITI).

Q: What is investing?
A: Investing involves allocating money to assets like stocks or bonds with the expectation of generating income or appreciation over time, balancing risk and return.

Q: What is the risk-return tradeoff?
A: Higher potential returns generally come with higher risk; conservative investments like bonds offer stability but lower gains, while stocks provide growth potential with volatility.

Q: What is diversification in investing?
A: Diversification spreads investments across asset classes, sectors, or geographies to reduce risk, as poor performance in one area is offset by others.

Q: What are stocks?
A: Stocks represent ownership shares in a company; common stocks offer voting rights and dividends, while growth depends on company performance and market conditions.

Q: What are bonds?
A: Bonds are debt securities issued by governments or corporations, paying periodic interest (coupon) and returning principal at maturity, generally lower risk than stocks.

Q: What is a mutual fund?
A: A mutual fund pools money from investors to buy a diversified portfolio managed professionally, offering accessibility but with fees and potential underperformance vs. indexes.

Q: What are ETFs?
A: Exchange-Traded Funds (ETFs) are baskets of securities traded like stocks on exchanges, providing diversification, low fees, and intraday trading flexibility.

Q: What is an index fund?
A: An index fund tracks a market index like the S&P 500, offering broad exposure, low costs, and passive management that historically outperforms most active funds long-term.

Q: What is a 401(k) plan?
A: A 401(k) is an employer-sponsored retirement account allowing pre-tax contributions up to $23,000 (2024), often with matching, growing tax-deferred until withdrawal.

Q: What is an Individual Retirement Account (IRA)?
A: An IRA is a personal retirement savings account with annual contribution limits ($7,000 in 2024 for under 50), offering tax advantages based on traditional or Roth types.

Q: What is a Roth IRA?
A: A Roth IRA allows after-tax contributions with tax-free qualified withdrawals in retirement, ideal for those expecting higher future tax rates or brackets.

Q: What is a Traditional IRA?
A: A Traditional IRA offers tax-deductible contributions and tax-deferred growth, with withdrawals taxed as ordinary income, suited for current tax savings.

Q: What are tax brackets?
A: Tax brackets are income ranges taxed at progressive rates (10%-37% federal in 2024); only income within each bracket is taxed at that rate, not all income.

Q: What are tax deductions?
A: Tax deductions reduce taxable income (e.g., mortgage interest, student loan interest), lowering tax liability; standard vs. itemized options apply based on total.

Q: What is inflation?
A: Inflation is the rate at which prices for goods and services rise, eroding purchasing power; target around 2% annually prompts saving and investing to outpace it.

Q: What is the time value of money?
A: The time value of money states a dollar today is worth more than tomorrow due to earning potential; discounted cash flows quantify future values in present terms.

Q: What is opportunity cost?
A: Opportunity cost is the value of the next best alternative forgone when making a decision, like choosing to spend on dining out instead of investing.

Q: What is asset allocation?
A: Asset allocation divides investments among stocks, bonds, and cash based on risk tolerance, age, and goals to optimize returns while managing risk.

Q: What is dollar-cost averaging?
A: Dollar-cost averaging invests fixed amounts regularly regardless of price, reducing timing risk by buying more shares when low and fewer when high.

Q: What is portfolio rebalancing?
A: Portfolio rebalancing adjusts asset allocation back to target percentages periodically (e.g., annually) by selling outperformers and buying underperformers to maintain risk levels.

Q: What are capital gains?
A: Capital gains are profits from selling assets at higher prices than purchased; short-term (under 1 year) taxed as income, long-term at lower rates (0-20%).

Q: What is health insurance?
A: Health insurance covers medical costs via premiums, deductibles, and copays; key types include HMOs (network-restricted) and PPOs (flexible with higher costs).

Q: What is term life insurance?
A: Term life insurance provides coverage for a set period (e.g., 20 years) at low premiums, paying beneficiaries only if death occurs during the term.

Q: What is disability insurance?
A: Disability insurance replaces income (50-70%) if unable to work due to illness or injury, with short-term (weeks-months) or long-term (years to retirement) options.

Q: What are the pros of renting vs. buying a home?
A: Renting offers flexibility, no maintenance costs, and lower upfront fees; buying builds equity and offers tax benefits but ties you down with higher costs and risks.

Q: What is a down payment?
A: A down payment is the initial cash portion of a home purchase (typically 3-20%), reducing loan amount, interest, and need for private mortgage insurance (PMI).

Q: What is private mortgage insurance (PMI)?
A: PMI protects lenders on conventional loans with less than 20% down, costing 0.5-1% of loan annually until equity reaches 20%.

Q: What is a 529 plan?
A: A 529 plan is a tax-advantaged savings account for education expenses, with growth tax-free if used for qualified costs like tuition; state-specific benefits vary.

Q: What are SMART financial goals?
A: SMART goals are Specific, Measurable, Achievable, Relevant, and Time-bound, e.g., 'Save $10,000 for emergency fund in 12 months via $833 monthly deposits.'

Q: What is a sinking fund?
A: A sinking fund earmarks money in a dedicated account for predictable future expenses (e.g., holidays, car repairs), preventing debt accumulation.

Q: What is a common behavioral finance bias?
A: Confirmation bias leads to seeking information confirming beliefs while ignoring contradictions, often causing poor investment decisions like holding losing stocks.

Q: What is estate planning?
A: Estate planning organizes asset distribution after death via wills, trusts, beneficiaries, minimizing taxes, avoiding probate, and ensuring wishes are followed.

Q: What is the difference between a will and a trust?
A: A will dictates asset distribution after death but goes through probate; a revocable living trust avoids probate, offers privacy, and manages assets during incapacity.

Q: What is tax-loss harvesting?
A: Tax-loss harvesting sells losing investments to realize losses offsetting capital gains taxes, then repurchases similar assets to maintain portfolio allocation.