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Understanding business 11th by mchugh nickels chapter bonus d

BONUS CHAPTER D

Managing
Personal
Finances

McGraw-Hill/Irwin

Copyright © 2015 by the McGraw-Hill Companies, Inc. All rights reserved.


LEARNING OBJECTIVES
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.
D-2



ALEXA VON TOBEL
LearnVest

• 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

D-3


NAME that COMPANY

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!

D-4


SIX STEPS to CONTROL YOUR
FINANCES

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

D-5


MANAGING YOUR HOUSEHOLD
BUDGET

LO D-1

• A household budget generally
includes:
- Mortgage or rent
- Food and clothing
- Vehicles and furniture
- Insurance needs
- Other expenses

D-6


POSSIBLE COST-SAVING
CHOICES

LO D-1

D-7


HOW MONEY GROWS

LO D-1

D-8


EASY-ish BUDGET CUTS

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.
Source: Kiplinger’s Personal Finance.

D-9


BILLIONAIRE’s TAB

LO D-1

Insights into a Lux Lifestyle

Source: Forbes, www.forbes.com, accessed November 2014.

D-10


BUILDING YOUR
FINANCIAL BASE

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.
D-11


FIVE RULES of FRUGALITY

LO D-2

1. Don’t give up what you love.
2. Find inexpensive forms of entertainment.
3. Cut back on non-crucial things.
4. Never go shopping
without knowing exactly
what you’re buying.
5. Shop around for good
deals!
Source: AARP, October 2010.

D-12


FINANCIAL BENEFITS of
BUYING a HOME

LO D-2

• A home is an investment you can live in.
• Paying for a home is a good way of forcing
yourself to save.
• Interest paid on your
home loan is tax
deductible.
• Three keys to optimal
return on your home
are: location, location,
location.

D-13


HOW MUCH HOUSE CAN YOU
AFFORD?

LO D-2

D-14


SAVING and MANAGING CREDIT

LO D-2

• 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.
• Not all credit cards are
equal. Check sites like
CardRatings.com or
CreditCards.com to find a fit.
D-15


CREDIT CARDS and DEBT

LO D-2

• 50% of college students have four or more credit
cards.
• Only 17% report paying off their balance each
month.
• If you feel managing a
credit card would be
too difficult, try a debit
card.

D-16


CREDIT CARD ACT of 2009

LO D-2

• 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.
• People must be over 21
or have an adult
cosigner to get a credit
card.
D-17


CLEAN CREDIT

LO D-2

Steps to Keep a Good Credit Score

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.
Source: Money Magazine, money.cnn.com, accessed November 2014.

Photo Credit: Robert Scoble

D-18


WHAT’s YOUR SCORE?

LO D-2

How You Might Rate on a Credit Score

D-19


TEST PREP

• 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?

D-20


INSURING YOUR LIFE

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.
D-21


PURCHASING ANNUITIES

LO D-3

• Annuity -- A contract to make
regular payments to a person for
life or for a fixed period; an
annuity guarantees an income
until you die.

• Two types of annuities:
1.

Fixed annuities

2.

Variable annuities
D-22


OTHER INSURANCE
PROTECTION

LO D-3

• Disability Insurance -- Insurance that pays part of
the cost of a long-term sickness or an accident.

• Homeowner’s or renter’s insurance covers the
cost of things you own if they are destroyed.
• Umbrella Policy -- Combining all your insurance
(life, health, homeowner’s, auto) from one company is
less costly.
D-23


WHERE HEALTHCARE
MONEY GOES

Source: U.S. Department of Health and Human Services.

LO D-3

D-24


WHAT to KNOW ABOUT
HEALTH SAVINGS ACCOUNTS

LO D-3

1. Your employer is likely to
offer HSA options.
2. The plans can be costly but
withdrawal for medical bills is
tax-free.
3. They’re not for everyone.
4. HSA accounts can double as
retirement accounts.
Source: Money Magazine, money.cnn.com, accessed November 2014.

D-25


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