part Chapter © 2009 The McGraw-Hill Companies, Inc. All rights reserved. 1 McGraw-Hill Personal Finance 1 Chapter 14

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 2 McGraw-Hill 1.Describe the six steps to successful financial management. 2.Explain strategies for building a financial base. 3.Define the different types of insurance and how they can protect your financial base. 4.Describe strategies for effective retirement planning. Learning Objectives

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 3 McGraw-Hill Earn Learn to: –Save –Spend wisely –Insure yourself Importance of education Why Plan Personal Finances?

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 4 McGraw-Hill Steps to Controlling your Assets Step 1: Take an Inventory –Assets and liabilities Step 2: Track Expenses –Tedious –Surprising expenses Step 3: Prepare a Budget –Financial plans –Lifelong benefit

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 5 McGraw-Hill Step 4: Pay Off Your Debts –Bills then debts –High interest debt first Step 5: Start a Savings Plan –Reduce finance charges Step 6: Borrow Money to Buy Assets –Unexpected emergencies –Good borrowing –Focus on needs not wants Steps to Controlling your Assets

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 6 McGraw-Hill Living frugally is difficult Marriage Real Estate: A Relatively Secure Investment Live in Fixed payments Excellent asset Interest on mortgage is tax deductible Amortization Managing Credit and Building a Financial Base

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 7 McGraw-Hill Best place: Stock market Contrarian approach Make money grow Learning to Manage Credit Personal capital fund Importance of credit card –Identification –Track purchases –Convenience Danger – Debt Where to Put Savings

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 8 McGraw-Hill Credit Reports Review once a year Monitor account activity FICO score

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 9 McGraw-Hill Buying Insurance Auto Insurance Required –Liability only vs. full coverage Uninsured motorist coverage Life Insurance Term insurance Whole life insurance Universal life Variable life Annuity

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 10 McGraw-Hill Health Insurance Deductible Co-payment Disability insurance Homeowner's or Renter’s Insurance Guaranteed replacement cost Rider Required by mortgage Buying Insurance

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 11 McGraw-Hill Planning for Retirement Long-range planning Waiting doubles payments Social Security Money comes from taxes Individual Retirement Accounts (IRAs) Future value Present value Roth IRA Investors can switch funds

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 12 McGraw-Hill 401(k) Plans Three benefits –Reduced taxable income –Deferred tax –Employers match deposit Best to diversify Keogh Plans The alternative Government’s help

© 2009 The McGraw-Hill Companies, Inc. All rights reserved. 13 McGraw-Hill Financial Planners Certification (CFP) One-stop financial center Covers all aspects of investing Estate Planning Guardians Life insurance Will –Executor Power of attorney Consult financial planner or attorney