Transcript Personal Finance

Personal Finance
Unit 1
Planning
Personal Finance - Planning
1.
Setting goals
S … Specific
M … Measurable
A … Attainable
R … Realistic
T … Time-bound
2.
Analyze Information
1.
2.
Where are you now?
What is coming in; what's going out
Planning (cont)
3.
Create a Plan
1.
2.
What is left over?
Decision time – Pros and Cons
1.
4.
Remember opportunity costs?
Implement the Plan
1.
The 3 R’s
R … Reality
R … Responsibility
R … Restraint
Planning (cont)
5.
Monitor and Modify the Plan
1.
2.
3.
4.
Watch it
Update it
Change it
Use it!
Personal Finance
Unit 3
Budget
Budgeting
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1.
2.
3.
When you do financial planning you are
looking to the future, building security,
and creating the lifestyle you want.
3 key things you must handle to reach
your goals:
Beat inflation … it has averaged 3% since
1926
Minimize taxes … tax-deferred, taxexempt, tax planning for possible
deductions
Plan for the unexpected … create
emergency fund
Plan for the unexpected
 S safety … savings/checking
accounts
 L liquidity … ability to get cash
 Y yield … interest rates
 C catastrophe proof … insurance
Budget for ____________
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Income
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Expenses
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Work
Allowance
Gifts
Daily lunch
Supplies
Snacks
Entertainment
Savings
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PYF
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Emergency – short term – long term
Personal Property Inventory
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A list of all valuable items you own
Examples: furniture, clothing,
appliances, books, collections
Important for insurance claims
Best if you use photographs of the
items
Helps you see your spending patterns
Item - Year purchased – Price – Value
Net Worth
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Assets
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Cash
Stocks/Bonds
Mutual funds
Real estate
Pensions
Life insurance (cash
value)
Personal property
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Liabilities
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Mortgages
Lines of credit
Bank loans
Car loans
College loans
Charge accounts
Taxes owed
Total assets – Liabilities = Net Worth
Net Worth (cont)
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When do you need it?
College financial aid
Loans
Mortgages
Lines of credit
Cost of College
4 year public education
$10,458
4 year private education
Tuition
Tuition
Room
Room
Board
Board
Books
Books
Trans &
other
Trans &
other
$22,533
Personal Finance
Unit 4
Savings and Investments
Savings
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Why save?
To ensure you have enough money
for special purchases & future
expenses
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Money set aside for short-term goals
Savings account
Money Market account
Time deposit (CD)
Investments
Why risk your money?
To grow your money and combat
inflation risk
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Money set aside for long-term goals
Decision – own or loan?
Stocks: capital gains + dividends
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1.
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Common vs. preferred stock
Bonds: right to receive fixed amount at a
future date + interest
Mutual funds
2.
3.
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Benefit – diversification + pro mgmt
Money Market, bonds, stocks, index
Growing your Money
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1.
2.
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1.
What do you need?
Money
Understand the time-value
of money
Time
Decisions
Do you own or loan?
Stocks
2.
Bonds
Risk vs. Reward
Risk vs. Reward
Risk
Commodities
Stocks/Bonds
Mutual funds
Savings account
Insurance
Safety
Time Value of Money
Time
TVM
Money
Rate
of
Return
Rule of 72
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72/interest rate = years to double
your investment
72/years to double = interest rate
required
Personal Finance
Unit 5
Credit
Credit
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1.
Loans, credit cards, and other
deferred payments. You are renting
money.
Steps to establish credit:
Maintain savings and checking
accounts
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2.
Get a department store credit card
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3.
4.
Shows money mgmt
Responsible use gives you good credit
Use your savings as collateral
Have someone with good credit
Credit
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1.
Are you credit worthy?
The four C’s:
Capacity
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2.
Capital
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3.
Your regular income + savings and
checking
Character
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4.
Your ability to repay (job? How long?
How much?)
Your willingness to repay. Your credit
report.
Collateral
Credit
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Types of credit
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Loans – either single-payment or
installment
Loans with collateral are called secured loans
 Loans without collateral are unsecured or signature
loans
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Credit cards – revolving or open-ended
credit
Bank cards – Mastercard, Visa
 Travel & Entertainment – American Express, Diners
Club
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Pay total each month
Credit Protection
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Truth in Lending Laws
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Require lenders to disclose certain
information:
Exact finance charges on an loans
 Credit cards – monthly interest rate, APR, method
of finance charge calculation
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Fair Credit Reporting Act
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Protects you from errors on credit
reports
Entitled to know the reason for
negative report
Fair Credit Billing Act
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Lets you dispute and correct billing
Comparing Offers
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What is the APR?
Is the APR fixed or
variable?
What is the periodic
rate?
How are finance
charges computed?
Is there a grace
period?
What fees does the
creditor charge?
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Annual, late payment,
cash advance, exceeding
the credit limit
Personal Finance
Unit 6
Insurance
Insurance
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The concept of insurance
A method of spreading individual risk
among a large group to make losses
more affordable to all
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Risk is the chance of financial loss from
perils to people or property
Terms:
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Insurer – policy – premium - policyholder deductible
Insurance
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Insurance is not meant to enrich
Insurance is meant to compensate for
actual losses. To put you back into the
same financial condition you were in
before the loss.
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Indemnification
Statistical probability is the root of
indemnification
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Higher probability = higher premium
Risks
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1.
2.
3.
What risks do you face?
Reference poster
3 major insurable risks:
Personal
Job, health, disability, death
Property
Home, car, possessions
Liability
Errors, neglect, accident
Risk - Management
Identify risks
Assess risks
Handle risks
Serious risks
Shift risk
Avoid risk
Nonserious risks
Reduce risk
Assume risk
Risk - Management Plan
1.
2.
3.
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5.
6.
Risk
Auto accident
Theft
Injury to visitor
Personal illness
Vision/dental
Income
protection
Method of handling
1. Auto policy
2. Renter’s policy
3. Liability floater
4. Health policy
5. Assume risk?
6. Life insurance
Auto Insurance
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1.
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4.
5.
Types of coverage:
Liability
Bodily injury, Property damage
Medical payments
Uninsured motorist
Underinsured motorist
Collision
comprehensive
Auto Insurance
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1.
2.
3.
4.
5.
Cost factors:
Car model
+ sports car; - safety features
Driver classification
+ male teenager
Location
+ cities; - rural areas
Miles driven and purpose
Your record
Health Insurance
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1.
Managed care plans:
HMO – health maintenance org.
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2.
Primary care physician
Care from within the network
No co-insurance or deductible
PPO – preferred provider org.
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Wider choice
Pay deductible & co-insurance
Reduced rates within network
Managed Care (cont)
3.
POS – point of service
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4.
Coverage less restrictive
Pay co-pay
Referrals outside network still covered
Indemnity plans
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Broader choice of doctors
Must pay deductibles (80/20)
Government Help
1.
Workers compensation
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2.
Employers required to carry this
insurance
Covers job related injuries & illness
COBRA – consolidated omnibus
reconciliation act
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For employees who lose their
insurance at work
Short term (while you find new
insurance)
Government Help (cont)
3.
Medicare
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4.
Part of social security
For people over 65 & those receiving
social security disability
Medicaid
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Insurance for low income families
Life Insurance
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1.
2.
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“Anytime someone else depends on your
income . . . You need life insurance.”
Terms: beneficiary – mortality tables –
rider – cash value
Types:
Term insurance
“pure” insurance – level – decreasing –
renewable
Permanent insurance
combines savings with lifetime protection
Many combinations of protection
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Property Insurance
Insurance to protect your personal
possessions
Renter’s insurance
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Homeowner’s insurance
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Household inventory (best of video taped)
Room – item – cost – date of purchase –
receipt
Cash value vs. replacement value
Basic – Broad – Special – Comprehensive
Does not cover floods, animals, motor
vehicles, business property
Liability coverage