Introduction to business: personal finance

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1. Personal Finance flickr photo by hi.Denise https://flic.kr/p/qLdd5K shared under a CC (BY-ND) license
2. 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
3. Latté factors flickr photo by Rowen Atkinson Photography https://flic.kr/p/4quYQh shared under a CC (BY-NC) license
4. 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.
5. Strive to save 10–20% of your income flickr photo by Roadsidepictures https://flic.kr/p/7nWiCL shared under a CC (BY-NC) license
6. 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?
8. Savings account: money loser creative commons licensed (BY-NC) flickr photo by ignignokt: https://flic.kr/p/ep8gUN
9. Pay your credit card in full every month creative commons licensed (BY-NC-ND) flickr photo by JudeanPeoplesFront: https://flic.kr/p/3hRhnh
10. 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?
12. $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
13. Debt repayment •Be a deadbeat •Pay more than the minimum •Rank your debt •Negotiate credit card bill •Beware debt consolidators •Bankruptcy is an option
14. Max out 401(k) & tax-advantaged savings flickr photo by rieh https://flic.kr/p/8f8h6W shared under a CC (BY) license
15. Retirement savings •Defined benefit •Defined contribution •401(k)/403(b) •Employer matching •IRA •Roth IRA
16. Never buy/sell individual stocks flickr photo by Ahmad Nawawi https://flic.kr/p/6Nxjh4 shared under a CC (BY-NC-ND) license
17. Buy inexpensive, diversified mutual funds By Overjive, CC BY-SA 4.0, https://commons.wikimedia.org/w/index.php?curid=47086229
18. 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
19. Make financial advisors commit to fiduciary standard flickr photo by paulhickey https://flic.kr/p/bja8M8 shared under a CC (BY-NC) license
20. 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
21. Suitability standard: "You're not wrong…"
22. Buy a home when financially ready flickr photo by Telstar Logistics https://flic.kr/p/5Ma7nj shared under a CC (BY-NC) license
23. Houses are terrible investments •Risky •Highly leveraged •Illiquid •Low rate of return flickr photo by lorenkerns https://flic.kr/p/gs7g2w shared under a CC (BY) license
24. Mortgages •Amortization •ARM •Balloon note •Fixed-rate mortgage •Home equity line of credit (HELOC) •PMI •FHA •VA •USDA
25. Insurance—make sure you're protected flickr photo by Damian Morys Photography https://flic.kr/p/8BKwYq shared under a CC (BY) license
26. 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
27. 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.