To grasp the concept of an inflation index, it’s vital to grasp the meaning of “index.” Simply stated, an index is a ratio that compares the value of one thing to another thing. It allows you to view the first thing in terms of its relative value when compared to that of the other thing. Knowing the rate of inflation is crucial, because it allows central banks to enact fiscal policies that keep inflation at a rate that keeps jobs and prices stable....
Let’s say you own your own business and made a large deposit of $10,001 at some point in the past year. Any time an individual makes a deposit over the amount of $10,000, the IRS may be notified. If this is the case and you file a tax return, you should be prepared to show how and why you received that money. How IRS Tax Audits Work A computer system scans every tax return the IRS receives to check for anomalies between it and other returns filed by taxpayers who are in a similar financial situation....
For example, say Michelle bought a home with a $400,000 mortgage but lost her job and still owed $300,000. After a few months of missed payments, her lender issues a notice of default (NOD). As a result, the lender loses the $300,000 that it lent to Michelle but could recoup it by selling the property. Michelle’s lender then tries to sell the property at a public auction but it doesn’t sell....
Asset/liability matching can be a powerful tool for investors. They use this strategy to convert the capital they’ve amassed into lump sums of cash or passive income from sources like dividends, interest, and rent to meet expected needs. Definition and Examples of Asset/Liability Matching Asset/liability matching is taking assets you may have and turning them into more liquid investments when you have a liability coming due. The simplest example of asset/liability matching is selling an automobile to pay a bill....
Public health insurance, such as Medicare and Medicaid, isn’t considered commercial health insurance because it’s government-run. However, Medicare Advantage and Medigap plans count as commercial health insurance since private health insurance companies manage them. Medical care can be expensive. If you don’t have health insurance, you’d have to pay for all of your doctor visits, procedures, prescription drugs, and other medical expenses out of pocket, which can be cost-prohibitive. Many people aren’t in a financial position to be able to afford this, which is why most of us turn to health insurance to help reduce health care costs....
In its simplest form, if you travel internationally, you might already have engaged in currency trading. Before you travel to, say, Canada from the United States, you might exchange your American dollars for Canadian dollars. You use American money to buy Canadian money. Depending on the foreign exchange rate at the time, you might be able to secure $1.26 Canadian (CAD) in exchange for $1.00 USD. Of course, this exchange rate constantly fluctuates....
The amount of interest you receive on a bond purchase does not change. Yield is merely a function of a bond’s market price, not its coupon rate, which is its interest rate based on the par value of the bond. If you buy that bond for $1,000, that pays $20 interest annually, but its market value increases to $1,100 one month later, then its current yield would decline from 2% when you bought the bond to 1....
Acronyms: durable POA, DPOAAlternate names: durable power of attorney for health care, durable financial power of attorney Let’s say your mother tests positive for COVID-19 and is hospitalized. She falls into a weeks-long coma. Her mortgage payment will soon be due, which she always pays by check. In her durable power of attorney, she named you as her agent. This allows you to withdraw money from her bank account and pay her mortgage, acting on her behalf....
By understanding how early withdrawals work, you can try to avoid charges and penalties on accounts that have them. Definition and Example of Early Withdrawal An early withdrawal is when you prematurely remove money from an account like a retirement account, annuity, or other investment vehicle with a defined withdrawal date. These funds were set aside for a specific period of time, and you can face consequences if you remove the money early....
Since it was created by Congress in 1968, the National Flood Insurance Program (NFIP), which is a part of the Federal Emergency Management Agency (FEMA), has lost more than $36 million, at least in part because it undercharges for premiums. Now, FEMA plans to overhaul its fee structure with a new plan scheduled to go into effect on October 1, 2021. We’ll look at the current flood insurance model, examine how and why it’s changing, and explain how the new risk rating may affect homeowners....
Interest Rate Parity Defined The underlying concept behind interest rate parity is that it doesn’t matter whether a person invests money in their home country and then converts their earnings to another currency, or converts the money first and invests the money overseas. Because interest rates and forward currency rates are intertwined, the investor makes the same amount of money either way. To understand interest rate parity, you should become familiar with currency exchange rates....
For example, a company like Coca-Cola could use the inventory turnover ratio to find out how quickly it’s selling its products, compared to other companies in the same industry. Acronym: ITR How the Inventory Turnover Ratio Works You can save yourself a lot of trouble when finding ITRs by looking at a company’s balance sheet and income statement. COGS is often listed on the income statement; inventory balances will be found on the balance sheet....
Want to know more about minimum margin? Learn the basics of how minimum margin works along with the rules you need to follow as an investor. Definition and Example of Minimum Margin Margin allows you to use money you borrow from your broker to pursue bigger returns. While margin gives you access to more money to invest, it also exposes you to higher potential for losses. Minimum margin is the amount an investor needs to deposit into their account before they can start trading on margin or shorting stocks....
Any foreign-earned income exclusion you claimedAny housing exclusion you claimedAny housing deduction you might have claimed When MAGI is used for health care and marketplace insurance plans, it includes untaxed foreign income, non-taxable Social Security benefits, and tax-exempt interest. There’s no single overall definition of MAGI because your adjusted gross income can be modified in different ways for different purposes. The Adoption Tax Credit and Assistance Programs The amount of adoption-related expenses that can be refunded through the Adoption Tax Credit is limited or phased out if your MAGI is above certain thresholds....
The answer depends on the situation, including your location. But in many cases, you’re already covered by a policy—even if it’s not your own. In other cases, you might want or need to purchase daily or weekly coverage of some kind. Let’s find out more about your choices for temporary car insurance. Can You Get Car Insurance for a Day? In some countries, you can get car insurance for one day and up to 28 days....
Let’s take a look at personal use property, how it works, and how it differs from investment property. Definition and Examples of Personal Use Property Personal use property is whatever you own and use without the primary intent to profit from its sale. Even if you’re unfamiliar with the term “personal use property,” it’s almost certain it is something you already have. The clothes you wear, the food in your pantry, and your cellphone all constitute personal use property....
How Qualified Privilege in a Defamation Lawsuit Works Qualified privilege is a type of defense that may be used by a defendant in a defamation lawsuit. Generally speaking, there must be a clear reason why the statement made was not defamatory. Additionally, there cannot be actual malice behind the statement for qualified privilege to successfully be used as a defense. “Qualified privilege is often used as a defense in defamation lawsuits because it essentially offers immunity,” Ben Michael, an attorney with Austin-based Michael & Associates, told The Balance in an email....
For example, Regulation B ensures that a lender cannot refuse someone from opening a credit card based on marital status. Lenders also can’t prohibit a person receiving Social Security Disability Insurance (SSDI) benefits from qualifying for a loan because they’re receiving government aid. How Regulation B Works Regulation B was originally enforced by the Fed. In 2010, the Dodd-Frank Act made the Consumer Financial Protection Bureau (CFPB) responsible for enforcing Regulation B....
Properties that meet or exceed the 1% rule have a good chance at making profits. Properties that do not meet the 1% rule may have a hard time making money on a monthly basis. There are, however, other methods investors should use for evaluating long-term rental properties before ruling out a property based on the 1% rule alone. How the 1% Rule Works Applying the 1% rule to a real estate purchase involves a relatively simple formula that investors can use two different ways:...
Each of the methods calculates the ratio of a company’s short-term assets to its short-term liabilities. Learn how the cash method ratio is used and how it varies from other methods. Definition and Examples of the Cash Ratio Liquidity measurements, such as the cash ratio, compare a company’s cash and other liquid assets to its current liabilities. This helps estimate its ability to pay off its short-term debt. If a company is tipping into insolvency, the application of the cash ratio might be the most realistic of the three liquidity ratios....
