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Bonus Chapter D - Managing Personal Finances
D-31
a. Banks, savings and loan, credit unions, and
insurance companies all have IRA savings
plans.
b. If you can accept more risk, put your IRA
funds into stocks, bonds, mutual funds, or
precious metals.
c. Mutual funds have multiple options and allow
you to switch from fund to fund.
8. Opening an IRA account may be one of the wis-
est investments you make.
D. SIMPLE IRAs
1. Companies with 100 or fewer employees can
provide their workers with a SIMPLE IRA.
2. Employees can contribute a large part of their
income annually, and the company matches the
contribution.
E. MyIRA PLANS are a Roth IRA-type retirement sav-
ings plans for low- to middle-income individuals.
F. 401(k) PLANS
1. A 401(K) PLAN is a saving plan that allows you
to deposit pretax dollars and whose earnings
compound tax free until withdrawal, when the
money is taxed at ordinary income tax rates.
a. 401(k) plans now account for half of Ameri-
ca’s private pension savings.
b. Only 70% of eligible employees make any
contribution—a huge mistake.
2. 401(k) plans have three BENEFITS:
a. The money you put in REDUCES YOUR
Bonus Chapter D - Managing Personal Finances
D-32
PPT D-28
Individual Retirement Accounts
INDIVIDUAL
RETIREMENT ACCOUNTS
D-28
LO D-4
• Roth IRA -- Does not give an up-front tax deduction
but earnings grow tax-free and are tax-free when they
are withdrawn.
• MyIRA -- A new Roth IRA-type retirement savings
plan for low- and middle-income individuals.
PPT D-29
401(k) Plans
401(k) PLANS
D-29
LO D-4
• 401(k) Plan -- An
employer-sponsored
savings plan that allows you
to deposit a set amount of
pretax dollars and collect
compounded earnings tax-
free until withdrawal.
Bonus Chapter D - Managing Personal Finances
D-33
PRESENT TAXABLE INCOME.
b. TAX IS DEFERRED on the earnings.
c. Employers often MATCH part of your depos-
it.
3. About 61% of employers match your contribu-
tion—often 50 cents on a dollar.
4. You can usually select HOW THE MONEY IS
INVESTED (stocks, bonds, and real estate).
a. Don’t invest all your money in the company
where you work.
b. As with any investment, it is best to DIVER-
SIFY your 401(k) funds.
5. There is a simple 401(k) plan for those firms with
100 or fewer employees.
G. KEOGH PLANS
1. KEOGH PLANS are retirement plans for small-
business people who do not have the benefit of
a corporate retirement system.
2. The maximum amount you can invest in Keogh
plans, $52,000 per year, is higher than for an
IRA.
3. Like IRAs, Keogh funds are NOT TAXED UNTIL
WITHDRAWN, nor are the returns the funds
earn.
4. As with IRAs, there is a 10% penalty for early
withdrawal.
H. FINANCIAL PLANNERS are people who assist in
Bonus Chapter D - Managing Personal Finances
D-34
PPT D-30
Benefits of 401(k) Plans
BENEFITS of 401(k) PLANS
D-30
LO D-4
• Three benefits of
401(k) plans:
1. Contributions
reduce your present
taxable income
2. Tax is deferred on
the earnings
3. Many employers
will match your
contributions.
PPT D-31
Keogh Plans
KEOGH PLANS
D-31
LO D-4
• Keogh plans allow self-employed people to
establish their own retirement plans.
• Keogh plans are like IRAs for entrepreneurs.
• Keogh plans can be withdrawn in a lump sum or
spread out over years.
Bonus Chapter D - Managing Personal Finances
D-35
developing a comprehensive program that covers
investments, taxes, insurance, and other financial
matters.
1. Many people claim to be financial planners; find
one who is a CERTIFIED FINANCIAL PLAN-
NER (CFP).
2. ONE-STOP FINANCIAL CENTERS, or financial
supermarkets, provide a variety of financial ser-
vices in one place.
3. Most financial planners begin with LIFE INSUR-
ANCE, usually term insurance, and add health
insurance plans.
4. Financial planning covers all aspects of invest-
ing, all the way to retirement and death.
I. ESTATE PLANNING
1. The first step is to SELECT A GUARDIAN for
your minor children, someone with a genuine
concern for your children.
a. You should leave sufficient resources to
raise your children, often through life insur-
ance.
b. Choose a contingent guardian in case the
first choice is unable to perform the func-
tions.
2. The second step is to PREPARE A WILL.
a. A WILL is a document that names the
guardian for your children, states how you
want your assets distributed, and names the
Bonus Chapter D - Managing Personal Finances
D-36
lecture enhancer D-7
THE TROUBLE WITH SUING YOUR
BROKER
The recent market crash left investors feeling misled by their
most trusted financial advisors. Many want to seek legal ac-
tion, but that might not be a possibility. (See the complete lec-
ture enhancer on page D.57 of this manual.)
PPT D-32
Planning for Those Who Will Inherit
PLANNING for THOSE
WHO WILL INHERIT
D-32
LO D-4
• Estate planning for those who will inherit money
from you may start with life insurance.
• Will -- A document that names the guardian for minor
children, states how you want your assets distributed
and names the executor for your estate.
• Executor -- Person who assembles and values your
estate, files income and other taxes, and distributes
assets.
Bonus Chapter D - Managing Personal Finances
D-37
executor for your estate.
b. The EXECUTOR is a person who assembles
and values your estate, files income and
other taxes, and distributes assets.
3. A third step is TO PREPARE A DURABLE
POWER OF ATTORNEY.
a. This document gives an individual you name
the power to take over your finances if you
become incapacitated.
b. A DURABLE POWER OF ATTORNEY FOR
HEALTH CARE delegates power to make
health decisions for you.
4. A financial planner can help you do the planning
needed to preserve and protect your invest-
ments and your children and spouse.
V. SUMMARY
Bonus Chapter D - Managing Personal Finances
D-38
test
prep
PPT D-33
Test Prep
TEST PREP
D-33
• What are three advantages of using a credit card?
• What kind of life insurance is recommended for
most people?
• What are the advantages of investing through an
IRA? A Keogh account? A 401(k) account?
• What are the main steps in estate planning?
Bonus C - Managing Personal Finances
D-39
PowerPoint slide notes
PPT D-1
Chapter Title
Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
Managing
Personal
Finances
BONUS CHAPTER D
PPT D-2
Learning Objectives
LEARNING OBJECTIVES
D-2
1. Outline the six steps for controlling your assets.
2. Explain how to build a financial base, including
investing in real estate, saving money, and
managing credit.
3. Explain how buying the appropriate insurance
can protect your financial base.
4. Outline a strategy for retiring with enough money
to last a lifetime.
PPT D-3
Alexa von Tobel
ALEXA VON TOBEL
LearnVest
D-3
• Started LearnVest after graduating
from Harvard and jobs with Morgan
Stanley and Drop.io.
• Von Tobel believed the cost
structure for financial plans were too
pricey for most consumers.
• She focuses on the 50/20/30
formula.
- 50% of pay goes to essentials
- 20% of pay is saved
- 30% of pay goes to lifestyle
Bonus C - Managing Personal Finances
D-40
PPT D-4
Name That Company
NAME that COMPANY
D-4
One way to save money is to use your credit cards
wisely. There are organizations that can help you
compare credit cards to get the most out of
them.
Name one of those organizations!
Companies: CardRatings.com or CreditCards.com
PPT D-5
Six Steps to Control Your Finances
SIX STEPS to CONTROL YOUR
FINANCES
D-5
LO D-1
1. Take an inventory of your
financial assets
2. Keep track of all your
expenses
3. Prepare a budget
4. Pay off your debts
5. Start a savings plan
6. Borrow only to buy assets
that increase in value
PPT D-6
Managing Your Household Budget
MANAGING YOUR HOUSEHOLD
BUDGET
D-6
LO D-1
• A household budget generally
includes:
- Mortgage or rent
- Food and clothing
- Vehicles and furniture
- Insurance needs
- Other expenses
Bonus C - Managing Personal Finances
D-41
PPT D-7
Possible Cost-Saving Choices
POSSIBLE COST-SAVING
CHOICES
D-7
LO D-1
Living frugally is not about doing without but rather mak-
ing wise choices.
PPT D-8
How Money Grows
HOW MONEY GROWS
D-8
LO D-1
The time value of money and compound interest are the
saver’s best friend.
PPT D-9
Easy-ish Budget Cuts
EASY-ish BUDGET CUTS
Source: Kiplinger’s Personal Finance. D-9
LO D-1
1. Cut back on gourmet
groceries and use coupons.
2. Cut down your cell phone bill.
3. Cut out the cable television.
4. Cut down on nights out.
5. Cut the clutter in your house.
1. This slide shows the student how to trim the fat of their
monthly budget.
2. Cutting cable! Shock! Horror! Many shows are available
through free sites like Hulu.com, a lot of people are going
cable-less.
3. Encourage students to visit free budgeting sites (like
Mint.com) so they can track their spending. This might
surprise them.
Bonus C - Managing Personal Finances
D-42
PPT D-10
Billionaire’s Tab
BILLIONAIRE’s TAB
Insights into a Lux Lifestyle
Source: Forbes, www.forbes.com, accessed November 2014. D-10
Perk New York
Billionaire
Los Angeles
Billionaire
Dinner for Two $550 at Per Se $700 at Urasawa
Hotel for Two Nights $70,000 at Four
Seasons
$30,000 at Four
Seasons
Haircut $200 at Sally
Hershberger $750 at Fekkai
Club Table Service $525+ at The Box $1,200+ at Voyeur
Massage $225 at Four
Seasons
$215 at Beverly Hills
Hotel
LO D-1
1. And you thought Fekkai’s shampoo was expensive! This
slide shows students what two billionaires in two Ameri-
can cities pay for services.
2. Ask students: What do these services give the person
above what others can afford? Is it really worth it to pay
this much?
PPT D-11
Building Your Financial Base
BUILDING YOUR
FINANCIAL BASE
D-11
LO D-2
• Live frugally. If married,
try to live on one income.
• Your first major
investment might be a
low-priced home.
• Buy for the long term and
don’t live beyond your
means.
PPT D-12
Five Rules of Frugality
FIVE RULES of FRUGALITY
Source: AARP, October 2010. D-12
1. Don’t give up what you love.
2. Find inexpensive forms of entertainment.
3. Cut back on non-crucial things.
LO D-2
4. Never go shopping
without knowing exactly
what you’re buying.
5. Shop around for good
deals!
1. This slide shows five steps to saving money.
2. Explain these are easy steps. Many think you have to
give up all fun if you want to live frugally. This slide
shows you just need to spend time thinking before you
buy instead of being impulsive.
3. Ask students: How many of you attend free concerts in-
stead of paying top-dollar for big acts?
Bonus C - Managing Personal Finances
D-43
PPT D-13
Financial Benefits of Buying a Home
• A home is an investment you can live in.
• Paying for a home is a good way of forcing
yourself to save.
FINANCIAL BENEFITS of
BUYING a HOME
D-13
LO D-2
• Interest paid on your
home loan is tax
deductible.
• Three keys to optimal
return on your home
are: location, location,
location.
Although the housing crisis has dampened home prices,
historically real estate has been a sound investment.
PPT D-14
How Much House Can You Afford?
HOW MUCH HOUSE CAN YOU
AFFORD?
D-14
LO D-2
PPT D-15
Saving and Managing Credit
• Contrarian Approach -- Buying stock whenever
everyone else is selling or vice versa.
• Credit cards serve useful purposes and are
important to own but must be used discriminately.
SAVING and MANAGING CREDIT
D-15
LO D-2
• Not all credit cards are
equal. Check sites like
CardRatings.com or
CreditCards.com to find a fit.
Warren Buffet is considered a contrarian investor.
Bonus C - Managing Personal Finances
D-44
PPT D-16
Credit Cards and Debt
• 50% of college students have four or more credit
cards.
• Only 17% report paying off their balance each
month.
CREDIT CARDS and DEBT
D-16
LO D-2
• If you feel managing a
credit card would be
too difficult, try a debit
card.
PPT D-17
Credit Card Act of 2009
• Created new consumer credit card protections
and went into effect in February 2010.
• New law allows card issuers to increase interest
rates for only a limited number of reasons.
CREDIT CARD ACT of 2009
D-17
LO D-2
• People must be over 21
or have an adult
cosigner to get a credit
card.
PPT D-18
Clean Credit
CLEAN CREDIT
Steps to Keep a Good Credit Score
Source: Money Magazine, money.cnn.com, accessed November 2014. D-18
PhotoCredit:RobertScoble
LO D-2
1. Always pay your bills on time!
2. Keep small balances on
multiple cards.
3. Don’t shift balances.
4. Don’t apply for too many cards
at once.
5. Don’t file for personal
bankruptcy.
1. This slide shows the student how to ensure they have a
good credit score.
2. Students don’t often understand the benefit of not just
paying the minimum amount due. Focus on paying bills
in full and on time.
Bonus C - Managing Personal Finances
D-45
PPT D-19
What’s Your Score?
WHAT’s YOUR SCORE?
How You Might Rate on a Credit Score
D-19
Range Rating
760 to 850 Excellent
700 to 759 Great
660 to 690 Fair
620 to 659 Poor
619 and under Very Poor
LO D-2
1. This slide shows the student what is a good credit score.
2. Scores range from 300 to 850.
3. Ratings also depend on a number of factors including:
credit payment history, current debt, length of credit his-
tory, credit type mix and frequency of application for new
credit.
PPT D-20
Test Prep
TEST PREP
D-20
• What are the six steps you can take to control
your finances?
• What steps should a person follow to build
capital?
• Why is real estate a good investment?
1. The six steps you can take to control your finances are:
(1) Take an inventory of your financial assets, (2) keep
track of all your expenses, (3) prepare a budget, (4) pay
off your debts, (5) start a savings plan, and (6) borrow
only to buy assets that increase in value or generate in-
come.
2. The steps a person should follow to build capital are:
Find a job, create a budget, and live frugally. Warren
Buffet became one of the worlds richest people but still
lives in the house he purchased in the 1950s! Invest
the money you save to generate more capital.
3. Historically real estate has been a sound investment. It
is the only investment you can live in. Also, the pay-
ments are fixed with the exception of taxes and utili-
ties. As your income increases, the house payments
get easier to make, while rent tends to increase over-
time.
PPT D-21
Insuring Your Life
INSURING YOUR LIFE
D-21
LO D-3
• Term Insurance -- A pure insurance protection for a
given number of years that typically costs less the
younger you buy it.
• Whole Life Insurance -- Combines pure insurance
with savings, so you buy both insurance and a
savings plan.
• Variable Life Insurance -- A form of whole life
insurance that invests the cash value of the policy in
stocks or other high-yielding securities.
Nearly 1/3 of U.S. households are without life insurance
coverage. Due to the cost difference, many recommend the
purchase of term insurance rather than whole life.
