List everything you spend as you go through the day At the end of the week transfer entries into a record book accounting program I The Need For Personal Financial Planning A Financial Planning Begins with Making Money Throughout history an investment in education has paid off regardless of the state of the economy or political ups and downs B Six Steps to Controlling Your Assets Fewer than 1 in 10 U S adults has accumulated enough money by retirement age to live comfortably 36 of U S households don t have a retirement account Step 1 Take an Inventory of Your Financial Assets Develop a balance sheet for yourself Subtract debts from assets to get your net worth Create an income statement Step 2 Keep Track of All Your Expenses Develop spending categories Step 3 Prepare a Budget Step 4 Pay Off Your Debts Pay higher interest rates off first Step 5 Start A Savings Plan Step 6 Borrow Only to Buy Assets That Increase in Value or Generate Income Most financial experts advise saving about 6 months of eatings for contingencies II Building Your Financial Base great strategy for couples is to save one income Rule of thumb Don t buy a home that costs more than two and a half times your annual income A Real Estate Historically A Relatively Secure Investment B Tax Deductions and Homeownership interest on your home mortgage payments is tax deductible location location location C Where To Put Your Savings one of the best places to invest over time is the stock market about half of U S households own stock and mutual funds contrarian approach buying stock when everyone else is selling or vice versa D Learning To Manage Credit Credit cards are an important element in you personal financial system b c 1 You may have to own a credit card to buy certain goods or rent a car 2 You can use a credit card to keep track of purchases 3 A credit card is more convenient than cash or checks Half of college students have 4 or more credit cards and only 17 report regularly paying off their balance Finance charges on credit card purchases usually amount to 12 26 annually The value of givebacks offers cash back or credit or frequent flier miles can be as high as 5 Prior to 2006 the minimum payment was 2 Credit Card Act of 2009 created new consumer credit card protections and went into effect Feb 2010 allows card issuers to increase interest rates for only a limited number of reasons restricts increasing rates at all during the first year of a new card account The Consumer Financial Protection Bureau regulates financial products and services mortgages credit cards student loans debt collection III Protecting Your Financial Base Buying Insurance Nearly 1 3 of U S households have no life insurance coverage the highest percentage in more than 4 decades term insurance pure insurance protection for a given number of years simplest and least expensive pure insurance protection for a given number of years that typically costs less the younger you buy it New baby your life insurance should be 7x your family income plus 100 000 for college whole life insurance life insurance that combines pure insurance and savings variable life insurance whole life insurance that invests the cash value of the policy in stocks or other high yielding securities annuity a contract to make regular payments to a person for life or for a fixed period guaranteed to have an income until you die fixed annuity investments that pay the policyholder a specified interest rate variable annuities provide investment choices identical to mutual funds A Health Insurance May receive it from our employer If not you can buy it from a health insurance provider like Blue Cross Blue Shield a health maintenance organization HMO or a preferred provider organization PPO one of the more popular alternatives to the traditional health insurance is a health savings account HSA disability insurance insurance that pays part of the cost of a long term sickness or an accident B Homeowner s or Renter s Insurance guaranteed replacement cost insurance company will give you whatever it costs to buy all those things new depreciated costs insurance will give you what the items worth now rider what you can buy to your policy to cover expensive items liability insurance protects from being sued be someone you accidentally injure umbrella policy a broadly based insurance policy that saves you money because you buy a your insurance from one company C Other Insurance automobile insurance IV Planning Your Retirement A Social Security time and increasing Social Security taxes B Individual Retirement Accounts IRAs social security the term used to describe the Old Age Survivors and Disability Insurance Program established by the Social Security Act of 1935 the number of people retiring living longer is increasing while the number paying into Social Security is declining maintaining Social Security may require reducing benefits encouraging people to retire later limiting cost of living adjustments COLAs made to benefits over individual retirement account IRA a tax deferred investment plan that enables you and your spouse if you are married to save part of your income for retirement a traditional IRA allows people who qualify to deduct from their reported income the money they put into an account tax deferred contributions retirement account deposits for which you pay no current taxes but the earnings gained are taxed as regular income when they are withdrawn at retirement traditional IRA is a good deal for investor b c the invested money is not taxed faster and higher return actual rate of return on investments can vary widely over time but the average annual gain for the S P 500 between 1970 and 2008 was 9 7 Roth IRA an IRA where you don t get upfront deductions on your taxes as you would with a traditional IRA but the earnings grow tax free and are also tax free when they are withdrawn usually the best deal for college age students 401 k plan a savings plan that allows you to deposit pretax dollars and whose earnings compound tax free until withdrawal when the money is taxed at C Simple IRAs companies with 100 or fewer workers employees contribute large part of income with a regular IRA and the company matches their contribution D 401 k Plans ordinary income tax rates Benefits account for half the private pension savings in the U S 1 your contributions reduce your present taxable income 2 tax is deferred on the earnings 3 61 of employers with match your contributions sometimes 50 cents