PERSONAL FINANCE

Unit 4: Insurance/Risk Management and Income/Careers

Chapter 10: Career Choices and

Taxes

Career Choices and Taxes•The average job is now only 2.1 years in length.•The average worker could have as many as 20 different jobs in their lifetime.•Small business is changing the way we work. 98.3% of the companies in America have fewer than 100 employees.

Career Choices and Taxes•MYTH: As you grow, you change.•TRUTH: You do not outgrow your personality.

•MYTH: You will learn and grow the most in the areas you are the weakest.•TRUTH: You grow in your strengths. You will grow the most in the areas that you already know and love the most.

Career Choices and Taxes•Less than 39% of people under 25 are satisfied with their jobs.•4 out of 5 Americans DO NOT have their dream job.•Only 14% of teens know how income taxes work.•69% of teens report that the amount of money the can make will influence the career they choose.

Career Choices and Taxes•73% of teens believe they’ll be earning plenty of money when they’re out on their own.•Based on the career that most interests them, teens believe they’ll be earning an average annual salary of $145,000. •The median annual household income is $48,201.

Career Choices and Taxes•Know your strengths and interests.• Identify careers that will allow you to explore your interests and play to your strengths.•Find something that blends your skills, abilities, personality, values, dreams, and passions.• If you don’t love what you do, you’ll hate what you’re doing.

Career Choices and Taxes•Do something you love and that is fun for you!• If you make a lot of money, great! • If you don’t, at least you will have spent a lifetime doing something that was rewarding. •Money should never become your primary motivation!

Career Choices and Taxes•Looking for a Job!

•After you find a job you would like to apply:•1. Cover letter •2. Resume•3. Job Interview•4. Phone follow-up• Interviews and jobs come from persistent follow-up and networking.

Career Choices and Taxes• Looking for a Job!

•1. Cover letter: •Should introduce yourself and why you are applying for the job. •List some of your qualifications and reasons why you are right for the position.•Do not list all of your past experiences, your resume will do that.

Career Choices and Taxes•2. Resume: •Google resume examples for whatever type of job you are applying for. •Basic info include: Education, work experience, skills, contact info.•Do not include items that will make you look bad!•Do not go into detail about any specific job, that is what the interview is for.

Career Choices and Taxes•3. Job Interview•Present yourself well…you are selling yourself, so make a good impression.•Dress professionally, do not look like you are going to prom!•Be on TIME, address everyone by name, offer a firm handshake, and maintain eye contact at all times.

Career Choices and Taxes•4. Phone Follow-up:•Companies interview a lot of people and could forget you easily, remind them of who you are!•Call them back a few days after your interview to thank them for the opportunity to present yourself.•Ask if there are any further questions that would help them make their decision.

Career Choices and Taxes•When you finally get a job and get paid you will notice you have less than you earned.•Gross Pay: Your earnings before taxes and other deductions have been taken out.•Net Pay: Your earnings after taxes and other deductions have been taken out. It is your take home pay.

Taxes•“Only two things in life are certain: death and taxes.” – Benjamin Franklin •Government uses taxes to pay for services such as roads, education, and social services.•Government taxes three economic bases to pay for its programs: income, consumption, and wealth.•Everyone pays taxes!

Taxes•Taxes on Income

•Every April 15th, income taxes are due.•Everyone who works are required to file tax returns.•People have gone to prison for failing to file income tax: Al Capone, Pete Rose, etc.

Taxes•When you are hired, you fill out a W-4, which determines how much income should be withheld from your check.•On your pay stub, three taxes are deducted from your check:•Federal Income Tax•State Income Tax•FICA (Federal Insurance Contribution Act)

Taxes•Federal Income Tax: Largest tax, used to support government programs like roads, hospitals, military, museums, Medicare/ Medicaid, parks, etc.•This is where the Federal Government gets most of its money.• It’s a progressive tax, meaning the more money you make, the more taxes you pay.

Taxes•State Income Tax: Used to support state services like education, libraries, public aid, transportation, etc. •Some states do not collect this tax: Florida, Alaska, Nevada, South Dakota, Texas, and Washington.•Not nearly as much as Federal Income taxes.

Taxes•FICA: Used to pay for Social Security and services when you retire.• It also provides services when you are disabled or are the children of deceased workers.•You only pay half of what you’re supposed to; your employer pays the other half.

Taxes• Taxes on Consumption

•Taxes on consumption consist of sales and excise tax.•Sales tax is used by states as a source of their income and each state sets its own tax rate.•Highest combined sales tax: •Birmingham & Montgomery, AL (10%)•Chicago, IL + 4 other cities (9.75%)

Taxes•Excise tax is levied on certain goods produced within a country.•Referred to as luxury tax.•Taxes on items such as gas, beer, liquor, cigarettes, and airplane tickets are excise taxes.

Taxes•Taxes on Wealth and Property

•Primary taxes are:•Property tax: tax on land, private homes, and business properties.•Some states tax on cars, boats, and other recreational vehicles.•Taxes on Wealth: tax on inheritance, estate, and large monetary gifts.

Chapter 11: Ins and Outs of

Insurance

Insurance•The purpose of insurance is to transfer risk!•Unless you have a large amount of cash set aside, you need to transfer risk to someone who can afford to pay for it.•Without proper insurance, certain losses can bankrupt you!•EVERYONE NEEDS INSURANCE!

Insurance•Money Facts:

•Most auto insurance companies offer up to 25% discounts for students that maintain a “B” average or better.•47 million Americans do not have health insurance.•Young adults (age 18-24) are the least likely of any age group to have health insurance.

Insurance•Medical bills and illness are the number one cause of bankruptcy in the US.•Summary: We’re all going to die someday. If people depend on your income, it is your responsibility to make sure they’ll be taken care of if something were to happen to you!

Insurance•Types of Insurance Coverage:•1. Homeowner’s or Renter’s •2. Auto•3. Health•4. Disability•5. Long-Term Care•6. Identity Theft•7. Life

Insurance•1. Homeowner’s Insurance•Mandatory if you finance your purchase of a home.•Protects you against fire, theft, etc. •Renter’s insurance is optional. It protects you against theft.•“Guaranteed Replacement Cost” coverage refunds you the value of your home in case of loss.

Insurance•2. Auto Insurance•Mandatory in the state of Illinois.•Protects you and other drivers.•Liability Coverage: If you cause an accident, the other person will want money to cover their loss. •Two types: bodily and property. •This is the only mandatory type of auto insurance.

Insurance•Collision: Generally pays for damage to your car in an accident.•Comprehensive: generally pays for damage to your car if it is stolen or damaged other than collision. (Fire, hail, vandalism, etc.)•Medical: covers you and your passengers for medical expenses that result from injuries in an accident.

Insurance•Uninsured/underinsured: pays for damages for bodily injury to you and your passengers when caused by another driver and the person responsible either has inadequate or no insurance.•Full Coverage: Mandatory if you finance your car with a dealer.•Contains all of the above and more.

Insurance•3. Health Insurance•Provides medical coverage in case of illness or accidents.•Also can provide coverage for doctor’s visits, vision, etc.•Usually does not include dental.•Medical bills are extremely expensive, so you must have health insurance!

Insurance•4. Disability Insurance•Designed to replace income lost due to short-term or permanent disability.

•5. Long-Term Care Insurance•Designed for nursing home, assisted living facilities, or in-home care.•69% of people over the age of 65 will require long-term care at some point.

Insurance•6. Identity Theft Protection•Protects you against identity theft and helps you restore your finances.•Do not buy protection that only provides credit report monitoring.•Cleaning up after someone steals your identity is a long process.

Insurance•7. Life Insurance•Provides income to people you designate in the event of your death.• If you have a family, it is your responsibility to make sure they are taken care of in case you die.•Helps pay for funeral arrangements.•You do not need it for life, only if someone depends on you for money.

Insurance•Deductible: the amount of expenses that must be paid out of pocket before an insurer will pay any expenses.•E.g. $500 deductible means you must pay $500 of any expenses before your insurance kicks in.• If damage to your car is $3000, you pay $500 and the insurance company covers the other $2500.

Insurance•Co-pay: a payment made each time a medical service is used. •Similar to a deductible, but usually a lot less.•Amount depends on the insurance provider and type of insurance.•E.g. $10 co-pay for every doctor visit.

Insurance•HMO vs. PPO

•HMO: Health Maintenance Organizations.•You select a primary care physician (PCP) who manages all of your health care.• If you go out of the HMO network, they will not provide coverage.

Insurance•PPO: Preferred Provider Organizations•Health plan that contracts with a network of providers and you can choose which to go to at any time as long as it is in the “Network”.• If you go out of network, you will most likely pay more.•You do not need a primary care physician.

Chapter 12: Real Estate

Real Estate•There were 2.2 million foreclosure filings in the U.S. during 2007.•More than 67% of Americans are homeowners.•Subprime mortgages are loans made to borrowers who are perceived to have high credit risk.•Subprime mortgages have high interest rates!

Real Estate• Buying a home!

•After you hire a real estate agent, you are ready to begin house hunting.•Your realtor should give you access to the MLS (Multiple Listing Service).•The MLS is where homes are listed and shows the basic information.•Allows you to compare sizes, location, and price.

Real Estate•Why Should You Buy A Home?

•1. It’s an investment.•When you rent, you are paying someone else and that money is gone.•When you pay a mortgage, you are paying for your home, which you can later sell for a profit or your money back.

Real Estate•2. It’s not affected by inflation.•The price of items may go up, but your mortgage is fixed. •You will make the same payment no matter what is happening in the economy.•With renting, someone may raise your rent!

Real Estate•3. It grows virtually tax-free.•The only taxes you have to pay is real estate taxes every year. •This is usually rolled into your mortgage.•You received part of that back when you file your tax return in April.•Therefore, the value of your house may increase over the years!

Real Estate•What Should I buy?

• Identify a few neighborhoods you would like to live in.•Buy the home near the bottom price range of the neighborhood, so it can increase in value.• If possible, buy near water or with a good view. These homes are highly desirable and are easily sold.

Real Estate•When Should I buy a Home?

•The only time you should buy a home is when you are out of debt and have a full emergency fund saved up.•You should also have a sizable down payment (20%) so you don’t have to pay for private mortgage insurance.

•Renting Vs. Buying

Real Estate•Renting:

•Advantages:•Flexibility – When the lease is up, you have the option of moving.•Less work in maintaining an apartment.•Smaller initial financial commitment.

Real Estate•Renting:

•Disadvantages:•No matter what happens, it is not an investment and you do not see a return•No ability to personalize the home. Cannot change anything inside.•No tax advantages. Landlord gets all of the tax breaks.

Real Estate•Buying:

•Advantages:•Over time, the mortgage balance is paid off and the home becomes an asset that you can sell and make money.•Ability to customize the home.•Tax benefits.•Fixed payments.

Real Estate•Buying:

•Disadvantages:•May lose money if economy goes down.•More difficult to move.•Maintenance issues are yours.•More up front money (down payment).