Transcript CUBIC 2016 Personal Finance Day 1x

CUBIC 2016
Day 1
Personal Finance
Bob Donchez
Maymester 2016
The Financial Planning Process
Personal Finance Topics
1)
2)
3)
4)
5)
6)
7)
8)
9)
Financial planning process
Assessing financial position
Basics of personal taxes
Insurance
Managing personal debt
Setting and achieving goals
Retirement topics
Investment topics
Putting it all together
Maymester 2016
Question
(1.1.0)
Describe your level of knowledge of personal finance?
A.
B.
C.
D.
E.
Very low
Low—very little knowledge
Medium—some knowledge
High—know quite a bit
Very high
Maymester 2016
Question
Describe your feeling/opinion:
A.
B.
C.
D.
E.
financial wealth is very important to happiness
financial wealth is only one factor to happiness
wealth has nothing to do with happiness
wealth usually detracts from happiness
really couldn’t say
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“Money is not the most important thing….but
it makes important things possible.”
-Ben Stein, 2004
Maymester 2016
M.C. Hammer:
Even $33,000,000 doesn’t
ensure financial success!
http://www.youtube.com/watch?v=otCpCn0l4Wo
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The Financial Planning Process
1-1 The Case for Learning Personal Finance
• Knowledge of personal planning concepts is low
• Creates poor planning decisions
– Savings rates are low
– Use of debt very high
– Basic investment mistakes common
• Knowledge is power
– TONS of financial data, but hard to get knowledge
– Who to trust to obtain knowledge and make good decisions?
– Personal finance very private matter
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The Financial Planning Process
1-2 A Basic Approach to Personal Finance
• Learn basic concepts—knowledge is power
• Spend within income; follow a budget
• Save regularly “off the top”—pay yourself first
• Use debt wisely—not to support lifestyle, but for key needs
• Make retirement planning a top priority early in career
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The Financial Planning Process
1-2 A Basic Approach to Personal Finance (continued)
• Assess financial position annually
• Set goals with a plan to achieve them
• Invest wisely using key concepts
• Use insurance to “protect the plan”
• Use trusted sources for answers
Maymester 2016
Question
Who do you (or would you) see for advice on a
personal finance issue or question?
A.
B.
C.
D.
E.
Friend
Parent or relative
Professional—planner or accountant
My broker
Newsletter, advisory service, on-line, magazine
Maymester 2016
Question
Describe how well you track/monitor your
financial accounts and spending.
A. I keep statements, and track income & expenses
very well
B. I keep my statements, but don’t track spending
too well
C. Kind of “hit and miss”
D. Not very organized at all
E. Say what?
Maymester 2016
Assessing Current Financial Position
2-1 Rationale for Establishing Financial Position
Can’t accomplish a financial plan without:
– A starting point; knowing “where you’re at”
– Having goals you want to achieve
– Establishing a plan to get from “here” to “there”
Important to measure financial position on a regular
basis (for example, annually)
Maymester 2016
Assessing Current Financial Position
2-1 Rationale for Establishing Financial Position
Financial Position entails:
– Personal income statement
• What you make, what you spend, what you save
– Personal balance sheet
• What you own, what you owe, and the difference (net worth)
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Assessing Current Financial Position
2-2 Personal Income Statement
Income
– Wages
– Self employment income
– Investment income (interest/dividends)
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Assessing Current Financial Position
2-2 Personal Income Statement
Expenses
Non-discretionary expenses (have to spend)
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Taxes
Food
Utilities
Basic household
Transportation (gas, oil, maintenance)
Debt payments
Insurance
Basic clothing
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Assessing Current Financial Position
2-2 Personal Income Statement
Expenses (continued)
Discretionary expenses (want to spend)
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Entertaining
Dining
Fashion clothing
Charitable contributions
Subscriptions
Vacation
All those “little” conveniences (premium channels, Starbucks,
etc)
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Assessing Current Financial Position
2-2 Personal Income Statement
Expenses (continued)
Discretionary expenses are separated from non- discretionary
because these items can better be used to increase savings.
Once personal income statement is made, a budget
can be created
Maymester 2016
Assessing Current Financial Position
2-2 Personal Income Statement
Savings and debt:
• If total expenses exceed income, savings falls or debt rises
• If total expenses less than income, savings rises or debt falls
• Savings best accomplished if:
1) saved regularly from payroll
2) taken first, “off the top”
Link to Sample Personal Income Statement
Maymester 2016
Assessing Current Financial Position
2-3 Personal Balance Sheet
Assets
– Cash and cash equivalents
• Checking, bank savings, money market, CDs
– Use assets
• Residence, auto, personal property
– Invested assets
• Taxable accounts
– Brokerage, securities, mutual funds,
• Tax sheltered accounts
– IRA, 401k, annuities, life insurance cash value
Maymester 2016
Assessing Current Financial Position
2-3 Personal Balance Sheet
Liabilities
– Revolving credit
• Credit cards
• Home equity line of credit
– Installment loans
• Personal loans
• Car loans
• Home equity line of credit
– Home loan, Mortgage
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Assessing Current Financial Position
2-3 Personal Balance Sheet
Net Worth
– Equals total assets less total liabilities
Link to Sample Personal Balance Sheet
Maymester 2016
Question
)
Do you have trouble keeping expenses under
control?
A.
B.
C.
D.
No, never
Hardly ever
Yes, sometimes
Yes, all the time
Maymester 2016
Assessing Current Financial Position
Exercise 1: Budgeting
Review exercise narrative and spreadsheet
• Complete budget numbers with comments and assumptions
• Answer question
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Question
)
Have you ever filed a personal tax return?
A.
B.
C.
D.
No
Yes, I did it
Yes, my parents did
Don’t know
Maymester 2016
Basics of Personal Taxes
3-1 Taxes paid by most people
Income tax
– Federal tax
– State tax
Social security/Medicare tax
Property tax
Car registration/use tax
(Health insurance)
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Basics of Personal Taxes
3-2 US tax structure
Progressive tax system
– Tax rate paid goes up by income bracket
Taxable income by bracket
– Tax rate ranges from 10% to 39.6%
– Marginal tax: tax paid on next dollar of taxable income
– Average tax: total tax divided by taxable income
Tax paid based on filing status
– Single
– Married, filing jointly
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Basics of Personal Taxes
3-2 US tax structure
Tax table (2016)
Maymester 2016
Basics of Personal Taxes
3-2 US tax structure
Example: tax on $50,000 taxable income, single
Maymester 2016
Question
Between 1913 and 2014, what was the highest
top marginal tax rate paid by individuals?
A.
B.
C.
D.
E.
38%
50%
58%
77%
92%
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Basics of Personal Taxes
3-3 Deriving taxable income
Standard deduction:
Single: $6,300
Married: $12,600
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Basics of Personal Taxes
3-3 Deriving taxable income
Exemption:
Single: $4,050
Married: $4,050 each
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Basics of Personal Taxes
3-3 Tax Forms
Tax return forms
– 1040 (long form)
– 1040EZ
Tax schedules (accompanying returns)
– Schedule A: Itemized deductions
• Medical, state tax, mortgage interest, charitable donations
– Schedule B: Interest and dividend income
– Schedule C: Profit/loss from business
– Schedule D: Capital gains/losses
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Basics of Personal Taxes
3-4 How taxes are paid
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Wage withholding
Directly paying estimated tax
Withholding of prizes and large distributions
Payment with tax return
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Basics of Personal Taxes
3-5 How to file tax return
• Complete on paper and mail
• Software system with electronic filing
– TurboTax, TaxACT, H&R Block
• Preparation by tax expert
– H&R Block, Jackson Hewitt, Liberty Tax
– Local CPA firm
Maymester 2016
Basics of Personal Taxes
3-6 Tax shelters (reducing tax)
• Owning your own home
– Deductible interest payments
• Retirement investing
– IRA, Roth IRA
– 401k, Roth 401k
• Self employment
– Business expense
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Basics of Personal Taxes
On-line resources
• Budgeting
http://personalfinance.duke.edu/manage-yourfinances/budget/discretionary-vs-non-discretionary-spending
http://mint.com
• Taxes
http://www.irs.gov/uac/IRS-Offers-Free-Tax-Help-1
http://taxes.about.com/od/preparingyourtaxes/tp/freefile.htm
Maymester 2016