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Introduction to business: personal finance

Ted Major
March 01, 2016

Introduction to business: personal finance

CC-BY-SA

Ted Major

March 01, 2016
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  1. Personal Finance
    flickr photo by hi.Denise https://flic.kr/p/qLdd5K shared under a CC (BY-ND) license

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  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

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  3. Latté factors
    flickr photo by Rowen Atkinson Photography https://flic.kr/p/4quYQh
    shared under a CC (BY-NC) license

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  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.

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  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

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  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?

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  7. View Slide

  8. Savings account:
    money loser
    creative commons licensed (BY-NC) flickr photo by ignignokt: https://flic.kr/p/ep8gUN

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  9. Pay your credit card in full
    every month
    creative commons licensed (BY-NC-ND)
    flickr photo by JudeanPeoplesFront:
    https://flic.kr/p/3hRhnh

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  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?

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  11. View Slide

  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

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  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

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  14. Max out 401(k) &
    tax-advantaged
    savings
    flickr photo by rieh https://flic.kr/p/8f8h6W shared under a CC (BY) license

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  15. Retirement savings
    •Defined benefit
    •Defined contribution
    •401(k)/403(b)
    •Employer matching
    •IRA
    •Roth IRA

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  16. Never buy/sell individual
    stocks
    flickr photo by Ahmad Nawawi https://flic.kr/p/6Nxjh4
    shared under a CC (BY-NC-ND) license

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  17. 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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  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

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  19. Make
    financial
    advisors
    commit to
    fiduciary
    standard
    flickr photo by paulhickey
    https://flic.kr/p/bja8M8 shared
    under a CC (BY-NC) license

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  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

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  21. Suitability standard:
    "You're not wrong…"

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  22. Buy a home when financially
    ready
    flickr photo by Telstar Logistics https://flic.kr/p/5Ma7nj
    shared under a CC (BY-NC) license

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  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

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  24. Mortgages
    •Amortization
    •ARM
    •Balloon note
    •Fixed-rate mortgage
    •Home equity line of credit (HELOC)
    •PMI
    •FHA
    •VA
    •USDA

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  25. Insurance—make sure you're
    protected
    flickr photo by Damian Morys Photography https://flic.kr/p/8BKwYq
    shared under a CC (BY) license

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  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

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  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.

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