Managing Personal Finance

Finance FactsU.S. is the largest capitalist country

Secret to capital (money) is SUCCESS!

Financial PlanningSecret to a good job is a good education

Typical full time worker in U.S. with a 4 year college degree earns about $50,000. (62% more than one with high school diploma)

Finish college.Government will be more likely to help with tax

breaks like free education accounts.

Make money, then work on saving, investing, and spending.

6 steps to controlling assets

1. take an inventory of your financial assetsDevelop balance sheet. (Assets=liabilities

+owners equity)List tangible assetsList liabilities

Create income statementList revenues and expensesSubtract expenses from revenuesGet you profit

6 steps to controlling assets

2. Keep track of all expensesList everything you spend money onMake spending categories

6 steps to controlling assets

3. Prepare a budgetMake budget for food, spending, payments

6 steps to controlling assets

4. Pay off debts

5. Start a savings planSave money each month and put in separate

account for bigger purchases

6 steps to controlling assets

6. Borrow only to buy assets that increase in value or generate income.

Car repairs, health care costs

Building Financial BaseBest way to a capitalist system is to have capital

to invest

Planning

Sacrifice

Real EstateA home is an investment you can live in

Once you buy a home, mortgage payments are fixed.

As income goes up, mortgage is easier to pay.

A home is a good asset to use when applying for a business loan.

Buying older homes and fixing them up to sell is a good way for financial security.

Tax Deductions and Homeownership

Buying a home is the biggest investment

Government is willing to help Interest on a home is tax deductibleLocation is best way to get optimal return on a

home.

What to do with savings?Worst place for young people is a savings bank

Best to have 6 months of money made saved up for emergencies or other payments

Best places to invest is stock market.Greater the risk, greater the returnWhen stock is low, it is the best time to buy

Learning to manage creditCredit cards are very useful

Most places require credit cards to ensure payment.

Keeps track of purchases

More convenient to carry

Sometimes gives you 5% back.

Danger with credit cards=debt!

Protecting your financial base: buying insurance

Life insuranceLeast expensive form

Whole life insurancePure insurance and savings

Variable life insurancewhole life insurance that invests the cash value of

the policy in stocks

AnnuitiesContract to make regular payments to a person for

life or a fixed period

Protecting your financial base: buying insurance

Health insuranceBlue Cross Blue ShieldDisabilities insurance

insurance that pays part of the cost of a long-term sickness or an accident

Protecting your financial base: buying insurance

Homeowners or renters insuranceCan have guaranteed replacement

Other insuranceMost states require automobile insuranceLiability insurance

Protect against getting sued

Umbrella policyBroad insurance policy that saves you money

Planning RetirementSocial Security

Continuous flow of money coming in and being paid out

Old age, survivors, disability insurance program established by social security act of 1935

Planning RetirementIndividual retirement accounts (IRAs)

tax deferred investment plan that enables you to save part of income for retirement.

Tax-defered contributions Those for which you pay no current taxes but the

earnings gained from IRA are taxed as income when they are withdrawn from IRA after retirement.

Roth IRANo up from deductions from taxes but the earnings

grow tax-free when they are withdrawn

Planning RetirementAdvantage of IRAs

Cant take money from any type of IRA until 59 ½ years old without paying 10% penalty

Planning Retirement401k plans

Allows you to deposit a set amount of pretax dollars and collect compounded earnings tax free until withdrawal, when the money is taxed at ordinary income tax rates.

Has 3 benefits Your contributions reduce your present taxable income Tax is defered on the earnings More than 80% of employers will match your

contributions.

Planning RetirementKoegh plans

IRA for entrepreneursCan invest up to $40,000 per yearNot taxed till withdrawn

Planning RetirementEstate planning

Ensuring everything that you own has a place to go (inheriting)

Will Document that names the guardian for children and

stated how you want your assets distributed, and names the executor for estate

Executor- person who assembles and values your estate and other taxes and distributes assets.

Prepare a durable power of attorney Document that gives an individual you name the power

to take over your finances if you become incapacitated.

ENDGet a financial planner to help if needed.