Personal Finance
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Quiz
• Closed book/closed notes
• Phones & computers put away
• You may collaborate with your team
• You are responsible for the answers on
your quiz
• You do not have to choose the same
answers as your team
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Latté factors
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All the financial advice you need in one
slide*
• Strive to save 10–20% of your income
•Pay your credit card in full every month
• Max out your 401(k)/tax-advantaged savings
•Never buy/sell individual stocks
• Buy inexpensive, diversified mutual funds
• Make financial advisors commit to fiduciary
std.
• Buy a home when financially ready
•Insurance—make sure you're protected
*Adapted from The Index Card, Harold Pollack.
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Strive to save 10–20% of your
income
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Debt vs. Savings
•Harold has $7000 in credit card debt
and $7000 in an emergency savings
account.
•Helaine has $0 in her savings account,
but also has a $0 credit card balance.
Who's in better financial shape?
Pay your credit card in full
every month
creative commons licensed (BY-NC-ND)
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Credit card repayment
Harold has two credit cards:
•$5000 balance, 25% APR
•$2500 balance, 10% APR
Both cards have a minimum payment of
$25, and has can pay $150/month.
How should he pay them off?
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No content
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$5,400
$5,600
$5,800
$6,000
$6,200
$6,400
$6,600
$6,800
$7,000
$7,200
$7,400
Low balance first Even payments High interest first
Debt after 3 years
Debt after 3 years
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Debt repayment
•Be a deadbeat
•Pay more than the minimum
•Rank your debt
•Negotiate credit card bill
•Beware debt consolidators
•Bankruptcy is an option
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Max out 401(k) &
tax-advantaged
savings
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Never buy/sell individual
stocks
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shared under a CC (BY-NC-ND) license
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Buy inexpensive,
diversified mutual
funds
By Overjive, CC BY-SA 4.0,
https://commons.wikimedia.org/w/index.php?curid=47086229
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Investment Accounts
•Random Walk Down Wall Street
•Efficient capital markets hypothesis
•Can't beat the market
•Actively managed vs. index
•Low-load/no-load
•80–90% managed funds underperform
•2 in ~3000 beat mkt after fees
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Make
financial
advisors
commit to
fiduciary
standard
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https://flic.kr/p/bja8M8 shared
under a CC (BY-NC) license
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Financial Advisors
•If you're not paying, the product is you.
•If you sit down to a game of cards and
don't know who the sucker is—it's you.
•TANSTAAFL
•Commission?
•"Fee-based"
•Fee-only
•Fiduciary standard at all times
•Suitability standard
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Suitability standard:
"You're not wrong…"
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Buy a home when financially
ready
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shared under a CC (BY-NC) license
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Houses are terrible
investments
•Risky
•Highly leveraged
•Illiquid
•Low rate of return
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Mortgages
•Amortization
•ARM
•Balloon note
•Fixed-rate mortgage
•Home equity line of credit (HELOC)
•PMI
•FHA
•VA
•USDA
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Insurance—make sure you're
protected
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shared under a CC (BY) license
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Golden rules of insurance
•For life insurance, stick with term
•For property insurance, higher
deductibles are better
•Double check that hospital & doctor are
on health insurance plan
•Liability insurance should be twice net
worth
•Avoid complicated annuities
•Keep an emergency fund
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Further reading
•The Index Card: Why Personal Finance
Doesn't Have to Be Complicated,
Helaine Olen & Harold Pollack
• The One-Page Financial Plan : a Simple
Way to Be Smart about Your Money,
Carl Richards*
•A Random Walk Down Wall Street,
Burton G. Malkiel*
•The Elements of Investing, Burton G.
Malkiel & Charles D. Ellis*
* Available in SSCC library.