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Overview
Take stock of your financial situation
From budgeting, saving, and reducing debt, to making timely investment choices and planning for the future, Personal Finance For Dummies provides fiscally conscious readers with the tools they need to take charge of their financial life.
This new edition includes coverage of an extensive new tax bill that took effect in 2018 and the impact on individuals, families, small businesses, and on real estate and investing decisions. Plus, it covers emerging investing interests like technology and global investing, cryptocurrencies, pot stocks, the lifestyle changes occurring with millennials, and more.
- Evaluate and manage your financial fitness
- Assess your credit report and improve your score
- Make smart investments in any economic environment
- Find out about international investing
The expert advice offered in Personal Finance For Dummies is for anyone looking to ensure that their finances are on the right track—and to identify the areas in which they can improve their financial strategies.
Product Details
| ISBN-13: | 9781119517894 |
|---|---|
| Publisher: | Wiley |
| Publication date: | 11/13/2018 |
| Series: | For Dummies Books |
| Edition description: | 9th ed. |
| Pages: | 496 |
| Sales rank: | 372,167 |
| Product dimensions: | 7.30(w) x 9.20(h) x 1.10(d) |
About the Author
Read an Excerpt
Chapter One
Figuring Your Financial Fitness
In This Chapter
* Common financial problems
* Bad debt, good debt, and too much debt
* Assets, liabilities, and your (financial) net worth
* How much you really saved last year
* Investment and insurance checkups
* Fitting money into your overall life
"I've made just about every financial mistake there is to make," lamented a student in my personal finance course. The student, who had an anxious yet depressed look, seemed to be asking me for forgiveness.
This is when it first dawned on me that as grown-up children — referred to as adults — we're not really allowed to make mistakes. If you mangle your car in an accident because you weren't paying attention or get fired from a job because of poor attendance and performance, you feel awful.
With financial matters, however, the fact that you've made a mistake may not be as obvious as twisted metal or a pink slip and no more paycheck. Some mistakes take months, years, even decades to manifest themselves. Even then, some people don't realize the foolishness of their ways.
REMEMBER
Few people like to be made to feel stupid or told that they're doing something wrong. And what you do with your money is a quite personal and confidential matter. I've endeavored not to be paternalistic in this book but to provide guidance and advice that is in your best interest. You don't have to take it all — pick what works best for you and understand the pros and cons of your options. But from this day forward, pleasedon't make the easily avoidable mistakes nor overlook the sound strategies that I discuss throughout this book.
If you're young, congratulations for being so forward-thinking as to realize the immense value of investing now in your personal financial education. You'll reap the rewards for many decades to come. But even if you're not so young, you surely have many years to make the most of what money you currently have and will earn (and may even inherit!) in the future.
Throughout our journey together, I hope to challenge and even change the way you think about money, about making important personal financial decisions — sometimes even about the meaning of life. No, I'm not a philosopher, but I do know that money, for better but more often for worse, is connected to many other parts of our lives.
Common Financial Problems
How financially healthy are you? You may already know the bad news. Or perhaps things aren't quite as bad as they seem.
When was the last time you sat down surrounded by all of your personal and financial documents and took stock of your overall financial situation, including reviewing your spending, savings, future goals, and insurance? If you're like most people, you've either never done this exercise or did so a long time ago.
Financial problems, like many medical problems, are best detected early (clean living doesn't hurt, either). Here are some common personal financial problems I've seen in my work as a financial counselor:
* Not planning. Human beings were born to procrastinate. That's why there are deadlines — and deadline extensions. With your finances, unfortunately, you have no deadlines, and you may think you have unlimited extensions! You can allow your credit card debt to accumulate or leave your savings sitting in lousy investments for years. You can pay higher taxes, leave gaps in your retirement and insurance coverage, and overpay for financial products. Of course, planning your finances isn't as much fun as planning a vacation, but doing the former will help you take more of the latter.
* Overspending. The average American saves less than 5 percent of his after-tax income (in contrast to those in other industrialized countries, where the savings rate is two to three times that in America). Simple arithmetic helps you determine that savings is the difference between what you earn and what you spend (assuming you're not spending more than you're earning!). To increase your savings, you either have to work more (yuck!), know a wealthy family who wants to leave its fortune to you, or spend less. For most of us, the thrifty approach is the key to building savings and wealth.
* Buying with consumer credit. Even with the benefit of today's lower interest rates, carrying a balance month-to-month on your credit card or buying a car on credit means that even more of your future earnings are earmarked for debt repayment. Buying on credit encourages you to spend more than you can really afford.
* Delaying saving for retirement. Most people say they want to retire by their mid-60s or sooner. But in order to accomplish this financially, most people need to save a reasonable chunk (around 10 percent) of their incomes starting sooner rather than later. The longer you wait to start saving for retirement, the harder it will be to reach your goal. And you'll pay much more in taxes to boot if you don't take advantage of the tax benefits of investing through particular retirement accounts.
* Falling prey to financial sales pitches. Great deals that can't wait for a little reflection or a second opinion are often disasters waiting to happen. A sucker may be born every minute, but a slick salesperson is born every second! Steer clear of those who pressure you to make decisions, promise high investment returns, and lack the proper training and experience to help you.
* Not doing your homework. To get the best deal, you need to shop around, read reviews, and get advice from disinterested, objective third parties. You need to check references and track records so you don't hire incompetent, self-serving, or fraudulent financial advisors. But with all the different financial products available, making informed financial decisions has become an overwhelming task. I've done a lot of the homework for you with the recommendations in this book. I also explain what additional research you need to do and how to go about doing it.
* Making decisions based on emotion. You are most vulnerable to making the wrong moves financially after a major life change (a job loss or divorce, for example) or when you feel under pressure. Maybe your investments have plunged in value. Or perhaps a recent divorce has you fearing that you won't be able to afford to retire when you had planned, so you pour thousands of dollars into some newfangled financial product. Take your time and keep your emotions out of the picture. In Chapter 21, I discuss how to approach major life changes with an eye to determining what changes you may need to make to your financial picture.
* Not separating the wheat from the chaff. In any field in which you're not an expert, you run the danger of following the advice of someone who you think is an expert but really isn't. This book teaches you to separate the financial fluff from the financial facts. If you look in the mirror, you'll see the person who is best able to manage your personal finances. Educate and trust yourself!
* Exposing yourself to catastrophic risk. You're vulnerable if you or your family don't have insurance to pay for financially devastating losses. People without a savings reserve and support network can end up homeless. Many people lack sufficient insurance coverage to replace their income. Don't wait for a tragedy to strike to learn whether you have the right insurance coverages.
* Focusing too much on money. Too much emphasis on making and saving money can warp your perspective on what's important in life. Money is not the first or even second priority in happy people's lives. Your health, relationships with family and friends, career satisfaction, and fulfilling interests should be more important.
Most problems can be fixed over time and with changes in your behavior. That's what the rest of the book is all about.
The rest of this chapter puts you through a financial physical to help you detect problems with your current financial health. But don't get depressed and dwell on your "problems." View them for what they are — opportunities to improve your financial situation. In fact, the more areas for improvement that you can identify, the greater the potential you have to build real wealth and accomplish your financial and personal goals.
Bad Debt versus Good Debt
Why do you borrow money? Usually, it's because you don't have enough money to buy something you want or need — like a college education. If you want to buy a four-year college education, you could easily spend $50,000 to $100,000, perhaps even more. Not too many people have that kind of spare cash. So borrowing money to finance part of that cost enables you to buy the education.
How about a new car? A trip to your friendly local car dealer shows you that a new set of wheels will set you back around $15,000 or more. Although more people have the money to pay for that than, say, the college education, what if you don't? Should you finance the car the way you'd finance the education?
BEWARE
The auto dealers and bankers eager to make you an auto loan say you deserve to and can afford to drive a nice, new car, so borrow away.
I say, NO! NO! NO!
Why do I disagree with the auto dealers and lenders? For starters, I'm not trying to sell you a car or loan from which I derive a profit! More importantly, there's a big difference between borrowing for something that represents a long-term investment and borrowing for consumption.
If you spend, say, $1,500 on a vacation, the money is gone. Poof! You may have fond memories and even some Kodak moments, but you'll have no financial value to show for it. "But," you say, "vacations replenish my soul and make me more productive when I return. In fact, the vacation more than pays for itself!"
Great. I'm not saying don't take a vacation. By all means, take one, two, three, or as many as you can afford yearly. But that's the point — what you can afford. In order to take the vacation, if you had to borrow money in the form of an outstanding balance on your credit card for many months, then you could not afford the vacation you took.
I refer to debt incurred for consumption as bad debt. Don't get me wrong — you're not a bad person for having the debt, but the debt is harmful to your long-term financial health.
You'll be able to take many more vacations during your lifetime if you save the cash in advance to afford them. If you get into the habit of borrowing and paying all that interest for vacations, cars, clothing, and other consumer items, you'll spend more of your future income paying back the debt and interest. So you'll have less money available for vacations and all your other goals.
One of the reasons you'll have less money using bad debt is because of the relatively high interest rates banks and other lenders charge for such debt. Money borrowed through credit cards, auto loans, and other types of consumer loans not only carries a relatively high interest rate but is also not tax-deductible.
TIP
I'm not saying never borrow money and that all debt is bad. Good debt, such as that used to buy real estate and small businesses, is generally available at lower interest rates than bad debt and is usually tax-deductible. If properly and smartly managed, these investments should also increase in value. Borrowing to pay for educational expenses can also make sense. Education is generally a good long-term investment. It should increase your earning potential.
How Much Bad Debt Is Too Much?
A useful way to size up your debt load is to calculate how much debt you have relative to your annual income. Ignore, for now, good debt — the loans you may owe on real estate, a business, an education, and so on. I'm focusing on bad debt, the higher-interest stuff used to buy items that depreciate in value.
For example, suppose that you earn $30,000 per year. Between your credit cards and an auto loan, you have $15,000 of debt. In this case, your bad debt represents 50 percent of your annual income.
bad debt / annual income = debt danger ratio
The financially healthy amount of bad debt is zero. (Not everyone agrees with me. One major U.S. credit card company says in its "educational" materials, which it gives to schools to supposedly teach students about sound financial management, that it's just fine to carry consumer debt amounting to 10 to 20 percent of your annual income.)
WARNING
When your debt danger ratio starts to push beyond 25 percent, that can spell real trouble. High-interest consumer debt on credit cards and auto loans is like cancer when it gets to those levels. As with cancer, the growth of the debt can snowball and get out of control unless something significant intervenes. If you have this much debt, see Chapter 5 to find out how to get out of debt.
How much good debt is acceptable? The answer varies. The key question is, are you able to save sufficiently to accomplish your goals? Later in this chapter, I help you figure how much you are actually saving, and in Chapter 3, I help you determine what you should be saving to accomplish your goals. Take a look at Chapter 14 to find out how much mortgage debt is appropriate to take on when buying a home.
REMEMBER
Avoid borrowing money for consumption (bad debt) — for spending on things like cars, clothing, vacations, and so on that decrease in value and eventually become financially worthless. Borrow money only for investments (good debt) — for purchasing things that retain and hopefully increase in value over the long term, such as an education, real estate, or your own business.
TIP
Playing the credit card float
Given what I have to say about the vagaries of consumer debt, you might think that I am against using credit cards. Actually, I have credit cards and I use them — but I pay my balance in full each month. Besides the convenience credit cards offer me in not having to carry around extra cash and checks, I get another benefit. I have free use of the bank's money extended to me through my credit card charges. (Some cards offer other benefits such as frequent flyer miles. Also, purchases made on credit cards may be contested if the seller of the product or service doesn't stand behind what it sells.)
When you charge on a credit card that does not have an outstanding balance carried over from the prior month, you typically have several weeks, known as the grace period, from the date of the charge to when you must pay your bill. Financial types call this playing the float. Had you paid for this purchase by cash or check, you would have had to shell out the money sooner.
If you have difficulty saving money and plastic tends to burn holes through your budget, forget the float game. You'd be better off not using your credit cards. The same applies for those who pay their bills in full but who spend more because it's so easy to do so with a piece of plastic.
Your Financial Net Worth
Your financial net worth is an important barometer of your financial health. It indicates your capacity to accomplish major financial goals such as buying a home, retiring, and withstanding unexpected expenses or loss of income.
Before you crunch any numbers here and before you experience the thrill of bigness or the agony of nothingness or negativity, let's get one thing perfectly clear. Sit down. Take a deep breath. And repeat after me:
REMEMBER
"My financial net worth has absolutely, positively, no relationship to my worth as a human being." This is not a test. You don't have to compare your number with your neighbor's. It's not the scorecard of life. So do we have an understanding? Good! I hate to see people get depressed about unimportant things that they have the power and ability to change.
Your net worth is your financial assets minus your financial liabilities.
Financial Assets - Financial Liabilities = Net Worth
Financial assets
A financial asset is worth real money or is something that you plan to convert to hard dollars that you can use to buy things now or in the future.
Financial assets generally include money in bank accounts, stocks, bonds, and mutual fund accounts (see Part III, which deals With investments). Also included is money that you have in retirement accounts, including those with your employer. You should also include the value of any businesses or real estate that you own.
TIP
I generally recommend that you exclude your personal residence. Include your home only if you expect to someday sell it or otherwise live off the money you now have tied up in it (perhaps by taking out a reverse mortgage, which I discuss in Chapter 14). If you plan on someday tapping into the equity (the difference between the market value and any debt owed on the property) in your home, add that portion of the equity that you expect to use to your list of assets.
Assets also include your future expected Social Security benefits and pension payments if your employer has such a plan. These are usually quoted in dollars per month rather than in a lump sum value. I show you in a moment how to account for these monthly benefits when tallying your financial assets.
Personal property such as your car, clothing, stereo, wine glasses, and straight teeth do not count as financial assets. I know adding these things to your assets makes your assets look larger (and some financial software packages and publications encourage you to list these items as assets), but you can't live off them unless you hock them at a pawn shop or otherwise sell them to meet your financial goals.
Financial liabilities
You must subtract your financial liabilities from your assets to arrive at your financial net worth.
Liabilities include loans and debts outstanding, like credit card and auto loan debts. Include money you've borrowed from family and friends (unless you're not gonna pay it back — I won't tell). Include mortgage debt on your home as a liability only if you include the value of your home in your asset list. Be sure to include debt owed on other real estate, no matter what.
(Continues...)
Table of Contents
Introduction 1About This Book 2
Foolish Assumptions 3
Icons Used in This Book 3
Beyond the Book 4
Where to Go from Here 4
Part 1: Getting Started with Personal Finance 5
Chapter 1: Improving Your Financial Literacy 7
Talking Money at Home 8
Identifying Unreliable Sources of Information 10
Understanding the dangers of free financial content online 10
Recognizing fake financial gurus 11
Publishers pandering to advertisers 17
Jumping over Real and Imaginary Hurdles to Financial Success 18
Discovering what (or who) is holding you back 18
Developing good financial habits 19
Chapter 2: Measuring Your Financial Health 21
Avoiding Common Money Mistakes 22
Determining Your Financial Net Worth 24
Adding up your financial assets 24
Subtracting your financial liabilities 25
Crunching your numbers 26
Interpreting your net worth results 26
Examining Your Credit Score and Reports 27
Understanding what your credit data includes and means 27
Obtaining your credit reports and score 28
Improving your credit reports and score 29
Getting credit report errors corrected 30
Knowing the Difference between Bad Debt and Good Debt 32
Consuming your way to bad debt 33
Recognizing bad debt overload 33
Assessing good debt: Can you get too much? 35
Playing the credit-card float 35
Analyzing Your Savings 36
Evaluating Your Investment Knowledge 38
Assessing Your Insurance Savvy 39
Chapter 3: Managing Where Your Money Goes 41
Examining Overspending 42
Having access to credit 42
Misusing credit cards 43
Taking out car loans 43
Bending to outside influences and agendas 44
Spending to feel good 45
Analyzing Your Spending 45
Tracking spending the “low-tech” way 46
Tracking your spending on “free” websites and apps 51
Chapter 4: Establishing and Achieving Goals 53
Creating Your Own Definition of Wealth 53
Acknowledging what money can’t buy 54
Managing the balancing act 54
Prioritizing Your Savings Goals 56
Knowing what’s most important to you 57
Valuing retirement accounts 57
Dealing with competing goals 58
Building Emergency Reserves 59
Saving to Buy a Home or Business 60
Funding Kids’ Educational Expenses 61
Saving for Big Purchases 61
Preparing for Retirement/Financial Independence 62
Figuring out what you need for retirement/financial independence 64
Understanding retirement building blocks 65
Crunching numbers for your retirement 69
Making up for lost time 71
Part 2: Spending Less, Saving More 73
Chapter 5: Dealing with Debt 75
Using Savings to Reduce Your Consumer Debt 76
Understanding how you gain 76
Finding the funds to pay down consumer debts 77
Decreasing Debt When You Lack Savings 78
Reducing your credit card’s interest rate 78
Understanding all credit-card terms and conditions 79
Cutting up your credit cards 79
Discovering debit cards: The best of both worlds 80
Turning to Credit Counseling Agencies 82
Beware biased advice at credit counseling agencies 82
Ask questions and avoid debt management programs 83
Filing Bankruptcy 84
Understanding bankruptcy benefits 85
Coming to terms with bankruptcy drawbacks 86
Deciphering the bankruptcy laws 87
Choosing between Chapter 7 and 13 88
Seeking bankruptcy advice 89
Stopping the Spending/Consumer Debt Cycle 89
Resisting the credit temptation 89
Identifying and treating a compulsion 90
Chapter 6: Reducing Your Spending 93
Unlocking the Keys to Successful Spending 94
Living within your means 94
Looking for the best values 95
Eliminating the fat from your spending 99
Turning your back on consumer credit 100
Budgeting to Boost Your Savings 101
Reducing Your Spending 102
Managing food costs 103
Saving on shelter 106
Cutting transportation costs 109
Lowering your energy costs 112
Controlling clothing costs 113
Repaying your debt 114
Indulging responsibly in fun and recreation 115
Lowering your phone bills 116
Technology: Spending wisely 118
Curtailing personal care costs 118
Paring down professional expenses 119
Managing medical expenses 120
Eliminating costly addictions 121
Keeping an eye on insurance premiums 122
Trimming your taxes 122
Chapter 7: Trimming Your Taxes 125
Understanding the Taxes You Pay 125
Focusing on your total taxes 126
Recognizing the importance of your marginal tax rate 126
Defining taxable income 128
Being mindful of the second tax system: Alternative minimum tax 128
Analyzing the 2017 Tax Cuts and Jobs Act 129
Trimming Employment Income Taxes 131
Contributing to retirement plans 131
Shifting some income 132
Increasing Your Deductions 133
Choosing standard or itemized deductions 133
Purchasing real estate 134
Trading consumer debt for mortgage debt 135
Contributing to charities 136
Remembering auto registration fees and state insurance 136
Deducting self-employment expenses 137
Reducing Investment Income Taxes 138
Investing in tax-free money-market funds and bonds 139
Selecting other tax-friendly investments 139
Making your profits long term 140
Does funding retirement accounts still make sense? 140
Enlisting Education Tax Breaks 141
Getting Help from Tax Resources 142
Obtaining IRS assistance 142
Consulting preparation and advice guides 143
Using software and websites 143
Hiring professional help 143
Dealing with an Audit 145
Getting your act together 146
Surviving the day of reckoning 146
Part 3: Building Wealth Through Investing 149
Chapter 8: Considering Important Investment Concepts 151
Establishing Your Goals 151
Understanding the Primary Investments 152
Looking at lending investments 152
Exploring ownership investments 153
Shunning Gambling Instruments and Behaviors 154
Forsaking futures, options, and other derivatives 155
Ditching day trading 155
Understanding Investment Returns 156
Sizing Investment Risks 157
Comparing the risks of stocks and bonds 157
Focusing on the risks you can control 158
Discovering low-risk, high-return investments 159
Diversifying Your Investments 160
Spreading the wealth: Asset allocation 162
Allocating money for the long term 163
Sticking with your allocations: Don’t trade 164
Investing lump sums via dollar-cost averaging 165
Acknowledging Differences among Investment Firms 166
Focusing on the best firms 167
Places to consider avoiding 169
Seeing through Experts Who Predict the Future 173
Investment newsletters 174
Investment gurus 174
Leaving You with Some Final Advice 176
Chapter 9: Understanding Your Investment Choices 179
Slow and Steady Investments 179
Transaction/checking accounts 180
Savings accounts and money-market funds 180
Bonds 181
Building Wealth with Ownership Vehicles 183
Socking your money away in stocks 183
Investing internationally in stocks 188
Generating wealth with real estate 189
Investing in small business (and your career) 195
Off the Beaten Path: Investment Odds and Ends 198
Precious metals 199
Bitcoin and other cryptocurrencies 199
Annuities 201
Collectibles 201
Chapter 10: Investing in Funds 203
Understanding the Benefits of Mutual Funds and Exchange-Traded Funds 203
Exploring Various Fund Types 205
Money-market funds 205
Bond funds 206
Stock funds 207
Balancing bonds and stocks: Hybrid funds 208
U.S., international, and global funds 208
Index funds 209
Specialty (sector) funds 210
Selecting the Best Funds 211
Reading prospectuses and annual reports 212
Keeping costs low 212
Evaluating historic performance 214
Assessing fund manager and fund family reputations 215
Rating tax friendliness 215
Determining your needs and goals 216
Deciphering Your Fund’s Performance 216
Dividends 217
Capital gains 218
Share price changes 218
Evaluating and Selling Your Funds 219
Chapter 11: Investing in Retirement Accounts 221
Looking at Types of Retirement Accounts 221
Employer-sponsored plans 222
Self-employed plans 225
Individual Retirement Accounts (IRAs) 227
Annuities: An odd investment 228
Allocating Your Money in Retirement Plans 230
Prioritizing retirement contributions 230
Setting up a retirement account 230
Allocating money when your employer selects the investment options 231
Allocating money in plans you design 235
Transferring Retirement Accounts 238
Transferring accounts you control 238
Moving money from an employer’s plan 241
Chapter 12: Investing in Taxable Accounts 243
Getting Started 244
Paying off high-interest debt 244
Taking advantage of tax breaks 245
Understanding Taxes on Your Investments 245
Fortifying Your Emergency Reserves 246
Bank and credit union accounts 246
Money-market mutual funds 246
Investing for the Longer Term (Several Years or Decades) 249
Defining your time horizons 250
Bonds and bond funds 250
Certificates of deposit (CDs) 253
Stocks and stock funds 254
Annuities 254
Real estate 255
Small-business investments 255
Chapter 13: Investing for Educational Expenses 257
Figuring Out How the Financial Aid System Works 258
Treatment of retirement accounts 259
Treatment of money in the kids’ names 259
Treatment of home equity and other assets 262
Strategizing to Pay for Educational Expenses 262
Estimating college costs 262
Setting realistic savings goals 264
Tips for getting loans, grants, and scholarships 264
Investing Educational Funds 266
Good investments: No-load mutual funds and exchange-traded funds 266
Bad investments 267
Overlooked investments 267
Chapter 14: Investing in Real Estate: Your Home and Beyond 269
Deciding Whether to Buy or Rent 270
Assessing your timeline 270
Determining what you can afford 270
Calculating how much you can borrow 272
Comparing owning versus renting costs 272
Considering the long-term costs of renting 276
Recognizing advantages to renting 277
Financing Your Home 277
Understanding the two major types of mortgages 277
Choosing between fixed- and adjustable-rate mortgages 278
Shopping for fixed-rate mortgages 281
Inspecting adjustable-rate mortgages (ARMs) 284
Avoiding the down-payment blues 288
Comparing 15-year and 30-year mortgages 289
Finding the best lender 291
Increasing your approval chances 293
Finding the Right Property 294
Condo, town house, co-op, or detached home? 294
Casting a broad net 295
Finding out actual sale prices 295
Researching the area 296
Working with Real-Estate Agents 296
Recognizing conflicts of interest 297
Looking for the right qualities in real-estate agents 298
Putting Your Deal Together 300
Negotiating 101 300
Inspecting before you buy 301
Remembering title insurance and escrow fees 302
After You Buy 303
Refinancing your mortgage 303
Mortgage life insurance 305
Going with a reverse mortgage: Yes or no? 305
Selling your house 306
Part 4: Insurance: Protecting What You Have 309
Chapter 15: Insurance: Getting What You Need at the Best Price 311
Discovering My Three Laws of Buying Insurance 312
Law I: Insure for the big stuff; don’t sweat the small stuff 312
Law II: Buy broad coverage 317
Law III: Shop around and buy direct 319
Dealing with Insurance Problems 322
Knowing what to do if you’re denied coverage 322
Getting your due on claims 323
Chapter 16: Insurance on You: Life, Disability, and Health 329
Providing for Your Loved Ones: Life Insurance 330
Determining how much life insurance to buy 330
Comparing term life insurance to cash value life insurance 332
Making your decision 335
Buying term insurance 336
Considering the purchase of cash value life insurance 338
Getting rid of cash value life insurance 338
Preparing for the Unpredictable: Disability Insurance 339
Deciding whether you need coverage 339
Determining how much disability insurance you need 340
Identifying other features you need in disability insurance 341
Deciding where to buy disability insurance 342
Getting the Care You Need: Health Insurance 343
Mandating health insurance: The Affordable Care Act (Obamacare) 343
Choosing the best health plan 344
Buying health insurance 347
Looking at retiree medical care insurance 352
Chapter 17: Covering Your Assets 357
Insuring Your Home 357
Dwelling coverage: The cost to rebuild 358
Personal property coverage: For your things 359
Liability insurance: Coverage for when others are harmed 359
Flood and earthquake insurance: Protection from Mother Nature 360
Deductibles: Your cost with a claim 361
Special discounts 361
Buying homeowner’s or renter’s insurance 362
Auto Insurance 101 363
Bodily injury/property damage liability 363
Uninsured or underinsured motorist liability 364
Deductibles 364
Special discounts: Auto edition 365
Little-stuff coverage to skip 365
Buying auto insurance 365
Protecting against Mega-Liability: Umbrella Insurance 366
Planning Your Estate 367
Wills, living wills, and medical powers of attorney 367
Avoiding probate through living trusts 368
Reducing estate taxes 369
Part 5: Where to Go for More Help 371
Chapter 18: Working with Financial Planners 373
Surveying Your Financial Management Options 373
Doing nothing 374
Doing it yourself 374
Hiring financial help 374
Deciding Whether to Hire a Financial Planner 377
How a good financial advisor can help 378
Why advisors aren’t for everyone 379
Recognizing conflicts of interest 379
Finding a Good Financial Planner 383
Soliciting personal referrals 383
Seeking advisors through associations 384
Interviewing Financial Advisors: Asking the Right Questions 384
What percentage of your income comes from clients’ fees versus commissions? 385
What portion of client fees is for money management versus hourly planning? 386
What is your hourly fee? 386
Do you also perform tax or legal services? 386
What work and educational experience qualifies you to be a financial planner? 387
Have you ever sold limited partnerships? Options? Futures? Commodities? Invested with Madoff? 387
Do you carry liability (errors and omissions) insurance? 388
Can you provide references from clients with needs similar to mine? 388
Will you provide specific strategies and product recommendations that I can implement on my own if I choose? 389
How is implementation handled? 389
Learning from Others’ Mistakes 389
Chapter 19: Using Technology to Manage Your Money 391
Surveying Software, Apps, and Websites 392
Adding up financial software benefits 392
Understanding how apps can benefit and harm your bottom line 393
Surfing hazards online 394
Accomplishing Money Tasks on Your Computer, Tablet, or Smartphone 397
Paying your bills and tracking your money 397
Planning for retirement 399
Preparing your taxes 400
Researching investments 400
Accessing economic and financial data 401
Trading online 401
Reading and searching periodicals 402
Investing through automated investment managers: Robo advisors 402
Buying life insurance 402
Preparing legal documents 403
Chapter 20: On Air and in Print 405
Observing the Mass Media 405
Alarming or informing? 406
Teaching questionable values 406
Worshipping prognosticating pundits 407
Rating Radio and Television Financial Programs 407
Finding the Best Websites 408
Navigating Newspapers and Magazines 409
Betting on Books 409
Understanding the book publishing business 410
Books at the head of their class 411
Part 6: The Part of Tens 413
Chapter 21: Survival Guide for Ten Life Changes 415
Starting Out: Your First Job 416
Changing Jobs or Careers 417
Getting Married 418
Buying a Home 420
Having Children 420
Starting a Small Business 422
Caring for Aging Parents 423
Divorcing 424
Receiving a Windfall 426
Retiring 427
Chapter 22: Ten Tactics to Thwart Identity Theft and Fraud 431
Save Phone Discussions for Friends Only 432
Never Respond to E-mails Soliciting Information 432
Review Your Monthly Financial Statements 433
Secure All Receipts 433
Close Unnecessary Credit Accounts 433
Regularly Review Your Credit Reports 434
Freeze Your Credit Reports 434
Keep Personal Info Off Your Checks 434
Protect Your Computer and Files 435
Protect Your Mail 435
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Cheat Sheet for Personal Finance For Dummies
From Personal Finance For Dummies, 7th Edition by Eric Tyson
All too often, financial advice ignores the big picture and focuses narrowly on investing. Because money is not an end in itself but a part of your whole life, connecting your financial goals to the rest of your life is important. You need a broad understanding of personal finance to include all areas of your financial life: spending, taxes, saving and investing, insurance, and planning for major goals like education, buying a home, and retirement. The following keys to success aren't a magic bullet, but they can help you get started thinking about the big picture.
Copyright © 2012 Eric Tyson. All rights reserved.
Eric Tyson's Keys to Personal Financial Success
• Take charge of your finances. Procrastinating is detrimental to your long-term financial health. Don't wait for a crisis or major life event to get your act together. Read this book and start implementing a plan now!
• Don't buy consumer items (cars, clothing, vacations, and so on) that lose value over time on credit. Use debt only to make investments in things that gain value, such as real estate, a business, or an education.
• Use credit cards only for convenience, not for carrying debt. If you have a tendency to run up credit-card debt, then get rid of your cards and use only cash, checks, and debit cards.
• Live within your means and don't try to keep up with your co-workers, neighbors, and peers. Many who engage in conspicuous consumption are borrowing against their future; some end up bankrupt.
• Save and invest at least 5 to 10 percent of your income. Preferably, invest through a retirement savings account to reduce your taxes and ensure your future financial independence.
• Understand and use your employee benefits. If you're self-employed, find the best investment and insurance options available to you and use them.
• Research before you buy. Never purchase a financial product or service on the basis of an advertisement or salesperson's solicitation.
• Avoid financial products that carry high commissions and expenses. Companies that sell their products through aggressive sales techniques generally have the worst financial products and the highest commissions.
• Don't purchase any financial product that you don't understand. Ask questions and compare what you're being offered to the best sources, which I recommend in this book.
• Invest the majority of your long-term money in ownership vehicles that have appreciation potential, such as stocks, real estate, and your own business. When you invest in bonds or bank accounts, you're simply lending your money to others, and the return you earn probably won't keep you ahead of inflation and taxes.
• Avoid making emotionally based financial decisions. For example, investors who panic and sell their stock holdings after a major market correction miss a buying opportunity. Be especially careful in making important financial decisions after a major life change, such as a divorce, job loss, or death in your family.
• Make investing decisions based upon your needs and the long-term fundamentals of what you're buying. Ignore the predictive advice offered by financial prognosticators — nobody has a working crystal ball. Don't make knee-jerk decisions based on news headlines.
• Own your home. In the long run, owning is more cost-effective than renting, unless you have a terrific rent-control deal. But don't buy until you can stay put for a number of years.
• Purchase broad insurance coverage to protect against financial catastrophes. Eliminate insurance for small potential losses.
• If you're married, make time to discuss joint goals, issues, and concerns. Be accepting of your partner's money personality; learn to compromise and manage as a team.
• Prepare for life changes. The better you are at living within your means and anticipating life changes, the better off you will be financially and emotionally.
• Read publications that have high quality standards and that aren't afraid to take a stand and recommend what's in your best interests. Avoid those that base their content on the hottest financial headlines or the whims of advertisers.
• Prioritize your financial goals and start working toward them. Be patient. Focus on your accomplishments and learn from your mistakes.
• Hire yourself first. You are the best financial person that you can hire. If you need help making a major decision, hire conflict-free advisors who charge a fee for their time. Work in partnership with advisors — don't abdicate control.
• Invest in yourself and others. Invest in your education, your health, and your relationships with family and friends. Having a lot of money isn't worth much if you don't have your health and people with whom to share your life. Give your time and money to causes that better our society and world.
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