Personal Finance Basics

Compound interest, index funds, credit scores and taxes: the money knowledge school skipped.

Most adults pick up personal finance in pieces, often after an expensive lesson. This deck sets the basics down in one place: how compound interest and inflation work, what an index fund is and why fees matter, how credit scores are calculated, and why moving into a higher tax bracket never lowers your take-home pay. A few cards are US-specific (401(k)s, Roth accounts, FICO) and say so.

All 32 cards

  1. What is compound interest?

    Interest earned on both your original money and the interest it has already earned, so growth speeds up over time.

  2. The Rule of 72: divide it by a yearly growth rate to estimate how many years money takes to double.

  3. By the Rule of 72, about how many years does money take to double at 8% a year?

    9

  4. At 3% inflation, prices double in about 24 years.

    72 ÷ 3 = 24. The same rule works for anything that grows at a steady rate.

  5. Roughly what does $10,000 grow to over 30 years at 7% a year, compounded?

    About $76,000

    Without compounding (simple interest), it would only reach $31,000.

  6. What is $10,000 worth after one year at 5% interest?

    $10,500

  7. What is inflation?

    A general rise in prices, which means each dollar buys a little less over time.

  8. APR or APY: which one includes compounding?

    APY. APR is the plain yearly rate; APY shows what you actually earn or pay in a year once interest compounds.

    Savings accounts advertise APY because it is the bigger number; loans quote APR because it is the smaller one.

  9. What is an emergency fund, and how big should it be?

    Cash set aside for surprises like a job loss or a car repair. A common guideline is three to six months of essential expenses.

  10. What is the 50/30/20 budget?

    50% of take-home pay to needs, 30% to wants, and 20% to saving and paying off debt.

  11. What does “pay yourself first” mean?

    Move money into savings as soon as you are paid, before spending, ideally automatically.

  12. How do you work out your net worth?

    Everything you own (assets) minus everything you owe (liabilities).

  13. What is opportunity cost?

    The value of the next-best option you give up when you choose something.

  14. What does liquidity mean?

    How quickly something can be turned into cash without losing value. Cash is fully liquid; a house is not.

  15. What is the difference between a stock and a bond?

    A stock is a share of ownership in a company. A bond is a loan to a company or government that pays interest.

  16. What is an index fund?

    A fund that simply holds everything in a market index, like the S&P 500, instead of trying to pick winners.

    Because nobody is paid to pick stocks, fees are usually very low.

  17. True or false: Most actively managed stock funds beat their index over 15 years or more.

    False

    Year after year, studies such as S&P’s SPIVA reports find that the large majority fall behind their benchmark over long periods, mostly because of fees.

  18. What is a fund’s expense ratio?

    The yearly fee it charges, as a percentage of what you have invested.

    Over decades, a 1% fee can take a quarter or more of your final balance compared with a 0.05% one.

  19. What is diversification?

    Spreading money across many investments so one failing does not sink you.

  20. What is dollar-cost averaging?

    Investing a fixed amount on a regular schedule whatever the price, so you buy more when prices are low and less when they are high.

  21. What are a bull market and a bear market?

    Bull: prices rising over a sustained period. Bear: prices falling 20% or more from a recent high.

  22. What is a stock’s P/E ratio?

    Its share price divided by its yearly earnings per share: how much investors pay for each dollar of profit.

  23. What is the 4% rule?

    A rule of thumb for retirement: withdraw 4% of your savings in the first year, then adjust for inflation. Historically, in the US, that has usually lasted at least 30 years.

  24. What is a 401(k) employer match, and why does it matter? (US)

    Your employer adds money when you contribute, usually up to a set share of salary. It is an immediate return, so contribute at least enough to get all of it.

  25. Roth or traditional retirement account: what is the difference? (US)

    Traditional: you contribute before tax and pay tax on withdrawals. Roth: you contribute after tax and qualified withdrawals are tax-free.

  26. What goes into a FICO credit score? (US)

    Payment history (35%), amounts owed (30%), length of credit history (15%), new credit (10%) and credit mix (10%).

  27. Lenders like to see credit card balances below about 30% of your credit limits, and lower is better.

  28. Debt avalanche or debt snowball: what is the difference?

    Avalanche pays off the highest-interest debt first, which saves the most. Snowball pays off the smallest balance first, for quick wins that keep you going.

  29. Why do early mortgage payments barely reduce the loan?

    Interest is charged on what you still owe, so early payments go mostly to interest; later ones go mostly to the principal.

  30. What is the difference between your marginal and effective tax rate?

    Marginal: the rate on your next dollar of income. Effective: your total tax divided by your total income, which is lower.

  31. True or false: Moving into a higher tax bracket means all your income gets taxed at the higher rate.

    False

    Only the income above the bracket’s threshold is taxed at the higher rate. A raise never lowers your pay after income tax.

  32. True or false: A tax refund means you paid more tax than you owed during the year.

    True

    It is your own money coming back, without interest.