PART 5: LIFE CYCLE ISSUES

Chapter 18 Fitting the Pieces Together

The Ingredients of Success
It is impossible to succeed financially unless you:
Evaluate your financial health.
Plan and budget.
Manage your cash and credit.
Control your debt.
Make knowledgeable consumer decisions.

The Ingredients of Success
It is impossible to succeed financially unless you:
Have adequate health, life, property, and liability insurance.
Understand investing principles.
Make investment decisions that reflect your goals.
Plan for retirement.
Plan for what happens to your accumulated wealth and your dependents after your die.

The Financial Life Cycle
Recent graduates make many financial decisions after leaving college. They:
May purchase a car and possibly a home.
Will establish credit and pay taxes.
May get married and begin a family.
Set up an emergency fund, start saving for your goals, and begin a retirement account.

The Financial Life Cycle
At age 19, put away $2000 at the end of each year for 7 years in an IRA that earns 11%, and then nothing thereafter; at age 65 you will have more than $1.2 million.
If you wait until you are 25 to start that IRA and make payments every year for 40 years, you still won’t catch up (you’ll have $1.164 million).
Start at 30, make 35 payments, and end up with less than $700,000.

Women and Personal Finance
While the basic principles of personal finance don’t change whether you’re a man or a woman, it is tougher for women to achieve financial security.
Women:
Generally earn less
Are less likely to have pensions
Qualify for less Social Security
Live longer than men

Consider these facts:
Over 90% of all women take sole responsibility for their financial decisions at some point.
Nearly half of all women over 65 get 90% of their income from Social Security, compared to 35% of comparable men.
75% of women don’t know how much they need to save for retirement.
Women tend to be more conservative in their investments, so they earn less.

Consider these facts:
Only 28% of women over 65 receive pension benefits, compared to 45% of men, and the average men’s pension was twice that of women.
At age 65, women outnumber men 3 to 2, by 85 they outnumber them 5 to 2.
While 12% of the elderly live in poverty, 75% of them are women.
In 2001, median personal income for 65 year-old women was $11,313, while for 65 year-old men it was $19,668.

How does a woman start to take charge?
Acquire knowledge.
Make things happen – create a plan.
See a financial planner about specific concerns.

Financial Life Events
Life Event 1: Getting Started
Lay the groundwork – understand investments and personal finance and assess current finances with planning for the future:
Expenses and a budget
Control debt
Establish an emergency fund
Insure yourself
Control your credit score
Keep current on personal finance

Identify your goals:
Identify and prioritize financial goals.
Set a time frame.
Identify the costs of your goals.

Begin saving for your goals:
Save more than you think you can.
Make savings automatic.
Don’t procrastinate.
Catch your matches.
ROTH.
How much risk can you tolerate?
Put together a strategy.
Control your spending.

Life Event 2: Marriage
Get Organized – review and reorganize finances.
Work together – discuss approaches to handling money.
Update financial records.
Gain control of your debt and your credit score – clear up debt issues to work towards getting a mortgage.
Merge finances to make good decisions.

Revisit Your Financial Goals – revisit both long- and short-term goals
Reexamine your financial goals.
Begin saving for new goals.
Make saving automatic.
Make sure you have an emergency fund.
Begin working towards retirement.

Reexamine your insurance and benefits: may change beneficiaries, buy additional insurance, and coordinate benefits.
Review your beneficiaries.
Include all family members.
Review your insurance.
Coordinate your benefits.

Reexamine your taxes: your tax status and the tax-advantaged benefits from your employer may change.
Update W-4 form.
Take advantage of tax breaks.
Make a will.
Review your beneficiaries.

Life Event 3: Buying a Home
Does the purchase fit your financial plan?
Keep track of your credit score.
Consider the tax implications.
Take advantage of tax benefits.
Build tax benefits into your budget.
Reexamine your investments.
Update your employer records.
Know your state.

Life Event 4: Having a Child
Survey your finances.
Assess your current financial situation.
Reexamine your financial goals.
Revise your budget.
Plan for college.
Estimate costs.
Automate your savings.

Life Event 4: Having a Child
Reconsider your insurance needs.
Review and update insurance.
Update wills and trusts.
Update or make a will.
Update your retirement account beneficiary.
Take advantage of tax savings.
Apply for Social Security number.
Update W-4.

Life Event 5: Inheritances, Bonuses, or Unexpected Money
Examine the priorities of your goals.
Reexamine your goals.
Consider estate planning.
Examine the tax implications.
Plan for tax implications.
Consider estate taxes.

Life Event 6: A Major Illness
Reexamine your finances.
Assess current financial situation.
Emergency fund – adequate liquidity.
Reexamine financial goals.
Reexamine investment strategy.
Revise budget.
Take advantage of tax breaks.
Understand the tax implications.
Explore flexible spending accounts (FSAs).

Life Event 6: A Major Illness
Alternatives to Finance Your Illness.
Reverse mortgage
Life insurance
Disability insurance

Life Event 7: Caring for an Elderly Parent
Health care and estate planning concerns.
Talk to your parents.
Oversee your parents’ financial affairs.
Understand their goals and budget.
Discuss long-term health care options.
Long-term health care insurance.
Estate planning.
Discuss estate planning.

Life Event 8: Retiring
Develop a retirement income plan.
Mental and financial preparation.
Plan how to use your retirement savings.
Manage your income in retirement.
Withdrawal strategy.
Monitor your investments.
Emergency fund.

Life Event 8: Retiring
Review your insurance coverage and your will.
Employer retiree health care.
Medicare and Medicare supplemental insurance.
Long-term health care insurance.
Homeowner’s insurance.
Review your will.
Keep track of important retirement planning dates.

Life Event 9: Death of a Spouse
Organize financial material.
Contact sources of survivor benefits.
Insurers.
Social Security.
Past Employers.
If you are the executor, carry out your responsibilities.
Distribution of assets.

Life Event 9: Death of a Spouse
Change ownership or title to assets.
Insurance policies.
Automobiles.
Bank accounts, stocks, bonds, and safe deposit boxes.
Credit cards.
Determine if your benefits change.
Review your insurance.

Life Event 10: Divorce
Nearly ½ of all marriages end in divorce and money problems are a main cause.
Prepare for divorce.
Pay down debt.
Keep the costs down.
Protect yourself with the help of a financial planner.
Consider a prenuptial agreement.

Life Event 10: Divorce
Avoid Credit Damage.
Late payments and your credit report.
Have your account re-aged.
Revisit your financial goals.
Insurance coverage.
Child support and alimony.
Rework your budget.
Retirement savings.
Reexamine your expenses.

Making Financial Success Happen
Wealthy Americans:
Net worth from $1 million-$5 million, not inherited.
Most have incomes less than $100,000.
They own a home valued at $278,000.
They are self-employed or a partner.
In their original marriage, have 3 kids.
They are frugal – clip coupons, buy on sale or do without.

The Keys to Success: A Dozen Decisions
Number 1: Become Knowledgeable – avoid financial pitfalls and bad advice, handle unwanted financial surprises.
Number 2: Don’t Procrastinate - your financial future starts now.
Number 3: Live below your means – don’t spend at your level or earning.

Number 4: Realize You Aren’t Indestructible - consider life and health insurance, stay healthy.
Number 5: Protect Your Stuff – have insurance to protect you from financial ruin.
Number 6: Embrace the “B” Word (Budget) – the budget is a means to reach your goals.

Number 7: Reinvent and Upgrade Your Skills – prepare for job insecurity by having the right skills.
Number 8: Hide Your Plastic – credit cards are a dangerous threat to your financial well-being.
Number 9: Stocks Are Risky, But Not as Risky as Not Investing in Them – invest long-term in stocks and keep up with inflation.

Number 10: Exploit Tax-Favored Retirement Plans to the Fullest.
Number 11: Plan for the Number of Children You Want.
Number 12: Stay Married.

Successful Debt Management
Key #1: The Obvious: Spend less than you earn and budget your money.
Key #2: Know the costs.
Key #3: Understand the difference between good and bad debt.

Successful Debt Management
Key #4: Make sure you can repay what you borrow – set your own standards.
Key #5: Keep your credit score strong – it keeps costs down and is a source of emergency money.
Key #6: Don’t live with bad (and expensive) debt.

Getting Started: Just Do It
Start today – don’t procrastinate.
Begin with budgeting and planning.
Pay attention to managing your cash.
Rid yourself of bad debt.
Your safety net should be in order.
Start investing.

PART 5: LIFE CYCLE ISSUES

by Saina33

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PART 5: LIFE CYCLE ISSUES Presentation Transcript