Personal Finance how people spend save invest and protect their financial resources Setting Financial Goals Step 1 CHAPTER 1 o Values principles that guide behavior o Attitudes likes and dislikes o Goals end results o Needs what you must have o Wants what you would like to have o Opportunity Costs the next best alternative that would be given up o Risk o o Liquidity how readily something can be turned into cash o Risk Aversion avoidance of risk Inflation Creating Activating Action Plans Step 2 Staying on course o o Expanding o Cutting back o Embarking on a new course Monitoring Evaluating Revising Plans Step 3 o Evaluate your financial plan at least once a year The General Economy Economics o Study of the economy how wealth is created distributed and the forces of supply de mand o Wealth total value of all items owned Financial assets o o Tangible assets Federal Reserve System The Fed o o Regulates the U S monetary system including maintaining an adequate money supply Consumers o Level of living o Standard of living Government Business Media 4 Key Players in the Economy Ben Bernanke 14th chairman of the federal reserve Macroeconomist Princeton Professor Janet Yellen 1st woman to lead the federal reserve as the chairwoman in its 100 year history o Responsibilities Monitor the country s financial system to prevent another recession Ensure that the Federal Reserve continues to aid in the process of bringing down the un employment rate Create a new era of recovery and growth for the economy The Economic Cycle Affected by levels of employment production and consumption Expansion Recession Decline Depression Recovery Indicators of the Direction of the Economy Inflation Index of leading economic indicators Consumer price index Gross Domestic Product Interest Rates Time Value of Money Theory that the value derived from the use of money overtime increases its total by investment and reinvestment Present Value Future Value Compound Interest The Changing World of Work Importance of Education Salary and employee benefits cafeteria style benefits Age and Stage in the lifecycle Retirement Summary of Benefits CHAPTER 2 Personal Finance 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 the Economy Jimmy Carter 1977 81 Ronald Reagan 1981 88 o Inflation was high Interest rates such as home mortgage were very high Supply Side Economics o o Encouraged the growth of business through things such as tax deduction incentives o Continued many of Reagan s republican policies George Bush 1989 93 Bill Clinton 1993 2001 New Economy o o Emphasized Growth Innovation Prosperity Expansion o Economy influenced by proliferation of computers cell phones and the internet George W Bush 2001 09 o Corporate Personal responsibility Barack Obama 2009 o Time of Recession o Economic stimulus package o Tax credits direct to employees through their employer Why keep good financial records Records reflect consumption Organizing Records Internet Banking Safety Deposit Boxes o o Home Storage of Records o Tax Considerations Long term Financial Records to keep Financial Statements Budgets o Trace the flow of income and expenses over a period of time o o o In the black In the red Focus on eliminating debt Balance sheets or net worth statements o List the value of assets liabilities Budgets o Income can come from many sources Wages salaries bonuses commissions Alimony child support Return on investments Allowance or gifts inheritances Social security benefits Public assistance Gains or loses form sale of assets Other sources rent income royalties loans scholarships tax refunds Fixed Expenses Variable Expenses Flexible Expenses Forecast forecast earnings and expenses as a planning tool Emergency Funds how much is enough To get ahead Spend less than you earn o o Own things that go up in value Budget Making Steps Setting goals Planning Implementing o o o o Evaluating The Personal Balance Sheet Net Worth Assets what is owned Liabilities what is owed Net Worth assets minus liabilities o If net worth is negative owe more than they own they should focus on getting out of debt Insolvent Solvency ability to pay debts Insolvent person owes more than he or she owns Negative Net Worth How Solvent Are You Selecting Financial Advisors Charges Fees o Fee only or Commission only or Fee Commission Credentials and Regulations o Over 500 000 people call themselves financial planners o There are some fraudulent financial planners that have limited skills o Securities and Exchange Commission SEC Recommendations o When people want financial advise they first turn to friends and relatives CHAPTER 3 Taxes payments of money to local state federal governments provides public goods and services Failure to pay can lead to various penalties including jail time and fines Taxation Philosophies pay for it Benefits Received Philosophy those who receive benefits of a particular public expenditure should Ability to pay Philosophy those with higher incomes should pay proportionally more than those with lower incomes Progressive Taxes the more you earn the more you pay Regressive Tax takes a smaller percentage from those with higher incomes o Ex Sales Tax Average Taxes Taxes cost around 20 40 percent of the average American s income Tax Avoidance use of legit 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 marital or household status that affects tax rates Death of a Taxpayer the taxpayer s spouse or personal representative may have to file and sign a re turn for that taxpayer Tax Deduction items to reduce taxes Withholding employer deducts federal income tax from your pay and sends it to the government Standard Deduction deduction set by the government based on filing status o Tax Withholding Calculator irs gov helps calculate exactly how much to pay Refund when too much is deducted and the government owes you money back Over 40 million U S taxpayers pay someone else to do their taxes average cost to hire one
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