Ch 1 Personal Finance and Career Planning Age 45 54 is when people usually have the highest income Personal Finance How people spend save invest and protect their finances Step 1 Setting Financial Goals Financial Goals Values Principles that guide behavior Attitudes Likes and dislikes Goals End results Needs What you must have Wants What you would like to have Importance Opportunity Cost Risk Inflation Liquidity How readily something can be turned into cash Risk Aversion avoidance of risk Step 2 Creating and activating action plans Staying on course Expanding Cutting back Embarking on a new course Step 3 Monitoring evaluating and revising plans Evaluate your financial plan at least once a year FOUR Key Players to the General Economy Economics the study of the economy how wealth is created and distributed and the forces of supply and demand Wealth total value of all items owned Financial assets Tangible assets what is physical and readily available Home car 1 Consumers 2 Government Level of living current state of living Standard of living what an individuals idea of their quality of living is Federal Reserve System The Fed nations central banking system Regulates the US monetary system including maintaining an adequate money supply 3 Business 4 Media Ben Bernanke 14th Chairman of the Federal Reserve Assumed office Feb 1 2006 Nationality American Alma Mater Harvard MIT Profession Macroeconomist Princeton Professor The Economic Cycle Expansion Recession Decline Depression Recovery Indicators of the Direction of Economy Inflation Index of leading economic indicators Consumer Price Index widely used measure of average changes in prices Interest rates Gross Domestic Product market value of goods and services produced in one year Time Value of Money Theory that the value derived from the use of money over time increases its total by investment and reinvestment Present value Future value Compound interest calculation of interest on interest The Changing World of Work and the Importance of Education Age and Stage in the Lifecycle Salary and employee benefits Cafeteria style benefits Retirement Summary of benefits Besting how many years you have to work somewhere to qualify for a retirement program Ch 2 Financial Statements and Budgets Microeconomics deals with smaller units within the economy such as understanding the decision making behavior of firms and households and how they interact in the marketplace Presidents and the Economy Jimmy Carter 1977 1981 Interest rates such as home mortgage were very high Inflation was high Ronald Reagan 1981 1988 Supply side economics Encouraging the growth of business through such things as tax incentives George Bush 1989 1993 Continued many of Reagan s policies Bill Clinton 1993 2001 New Economy Emphasized growth Economy influenced by proliferation of computers cell phones and the Internet Innovation prosperity and expansion George W Bush 2001 2009 Corporate and personal responsibility Barack Obama 2009 present Recession Economic stimulus package Tax credits direct to employees through employers Why keep good financial records Records reflect consumption Internet banking Inventory list of financial and legal records Organizing records Safety deposit boxes Home storage of records Tax considerations Keep tax records for at least 3 years experts say 7 years Long term financial records to keep Marriage certificate Birth certificate Military papers Adoption papers Wills Important Numbers List Account numbers Credit debit cards Insurance Financial Statements Budgets Trace the flow of income and expenses over a period of time In the black GOOD cash flow is in check In the red BAD you re financially in trouble focus on eliminating debt cold turkey finances spend nothing income can come from many sources wages salaries bonuses commissions alimony child support return on investments allowances or gifts inheritances social security benefits public assistance gains or loses from sales of assets other sources rent income royalties loans scholarships tax refunds etc Balance sheets or net worth statements list the value of assets worth and liabilities debts Fixed expenses Variable expenses Flexible Expenses Forecast forecast earnings and expenses as a planning tool 3 6 months worth in case of job lose etc Emergency funds How much is enough To get ahead spend less than you earn own things that go up in value Budget Making Steps setting goals planning implementing the plan evaluating the plan The Personal Balance Sheet Net Worth Assets what is owned Liabilities what is OWED Net Worth assets liabilities If your net worth is negative meaning you owe more than you have you should concentrate on getting out of debt How Solvent Are You Solvency ability to pay debts Insolvent person owes more than they have Selecting Financial Advisors charges and fees fee only commission only fee and commission based credentials and regulations over 500 000 calling themselves financial planners there are fraudulent with limited skills Securities and Exchange Commission SEC Recommendations when people want financial advise people turn first to friends and relatives Ch 3 Taxes the average American pays between 20 40 of earnings in taxes Taxes payments of money to local state or federal governments used to provide public goods and services failure to pay can lead to various penalties including jail Taxation Philosophies benefits received philosophy those who receive the benefits of a particular public expenditure should pay for it Ability to pay philosophy those with higher incomes should pay proportionally more taxes than those with lower incomes Progressive taxes the more you earn the more you pay takes a smaller percentage from those with high income than from those with lower income Regressive tax Sales tax example of regressive taxes Averages Taxes taxes run around 20 40 of the average American s income Tax Avoidance use of legitimate methods to reduce one s taxes Tax Evasion use of illegal methods to reduce taxes Marginal Tax Rate tax rate applied to the last dollar of earnings Types of Taxes Excise Taxes tax on specified goods and services Homestead Exemptions reductions in property taxes Estate Tax tax imposed on the value of a deceased person s net worth Inheritance Tax taxes paid by the beneficiaries of an estate Gift Tax federal tax a giver of a sizable gift may have to pay Tax Filing Filing status Death of a taxpayer marital or household status that affects tax rates the
View Full Document
Unlocking...